Edgar Filing: INTERCONTINENTAL HOTELS GROUP PLC /NEW/

20-F

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F


(Mark One)
o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2005
or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-10409

InterContinental Hotels Group PLC

(Exact name of registrant as specified in its charter)

England and Wales

(Jurisdiction of incorporation or organization)

67 Alma Road,

Windsor, Berkshire SL4 3HD

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered

American Depositary Shares		New York Stock Exchange
Ordinary Shares of 10 pence each		New York Stock Exchange*


*	Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Ordinary Shares of 10 pence each 432,936,345

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes þ No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


	Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 o Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

Yes o No þ

TABLE OF CONTENTS


		Page

Introduction			4
Cautionary Note Regarding Forward-Looking Statements			5

PART I
Item 1.	Identity of Directors, Senior Management and Advisors		7
Item 2.	Offer Statistics and Expected Timetable		7
Item 3.	Key Information		7
	Selected Consolidated Financial Information		7
	Risk Factors		13
Item 4.	Information on the Company		16
	Summary		16
	Segmental Information		20
	Hotels		24
	Soft Drinks		44
	Trademarks		45
	Organizational Structure		45
	Property, Plants and Equipment		45
	Environment		46
Item 5.	Operating and Financial Review and Prospects		46
	Introduction		46
	Critical Accounting Policies Under IFRS and US GAAP		47
	Operating Results		49
	Liquidity and Capital Resources		57
Item 6.	Directors, Senior Management and Employees		60
	Directors and Senior Management		60
	Compensation		63
	Board Practices		64
	Employees		67
	Share Ownership		68
Item 7.	Major Shareholders and Related Party Transactions		69
	Major Shareholders		69
	Related Party Transactions		69
Item 8.	Financial Information		69
	Consolidated Statements and Other Financial Information		69
	Significant Changes		70
Item 9.	The Offer and Listing		70
	Plan of Distribution		71
	Selling Shareholders		71
	Dilution		71
	Expenses of the Issue		71


		Page

Item 10.	Additional Information		71
	Memorandum and Articles of Association		71
	Material Contracts		74
	Exchange Controls		76
	Taxation		76
	Documents on Display		80
Item 11.	Quantitative and Qualitative Disclosures About Market Risk		80
Item 12.	Description of Securities Other Than Equity Securities		82

PART II
Item 13.	Defaults, Dividend Arrearages and Delinquencies		82
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		82
Item 15.	Controls and Procedures		82
Item 16.	[Reserved]		82
Item 16A.	Audit Committee Financial Expert		82
Item 16B.	Code of Ethics		82
Item 16C.	Principal Accountant Fees and Services		83
Item 16D.	Exemptions from the Listing Standards for Audit Committees		83
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers		83

PART III
Item 17.	Financial Statements		84
Item 18.	Financial Statements		85
Item 19.	Exhibits		85
EX-4.B.V: NEW ZEALAND SHARE SALE DEED
EX-4.B.VI: AUSTRALIA SHARE AND UNIT SALE DEED
EX-4.B.VII: BRITVIC UNDERWRITING AGREEMENT
EX-4.B.VIII: SALE AND PURCHASE AGREEMENT
EX-4.C.II: RICHARD HARTMAN'S LETTER OF APPOINTMENT
EX-4.C.IV: STEVAN PORTER'S LETTER OF APPOINTMENT
EX-4.C.VI: RICHARD SOLOMONS' LETTER OF APPOINTMENT
EX-4.C.VIII: ANDREW COSSLETT'S LETTER OF APPOINTMENT
EX-8: LIST OF SUBSIDIARIES
EX-12.A: CERTIFICATION
EX-12.B: CERTIFICATION
EX-13.A: CERTIFICATION

INTRODUCTION

As used in this document, except as the context otherwise requires, the terms:


	•	“board” refers to the board of directors of InterContinental Hotels Group PLC or, where appropriate, the board of InterContinental Hotels Limited or Six Continents Limited;

	•	“Britvic” refers to Britannia Soft Drinks Limited for the period up to November 18, 2005, and thereafter, Britannia SD Holdings Limited (renamed Britvic plc on November 21, 2005) which became the holding company of the Britvic Group on November 18, 2005;

	•	“Britvic Group” refers to Britvic and its subsidiaries from time to time;

	•	“Company” refers to InterContinental Hotels Group PLC, InterContinental Hotels Limited or Six Continents Limited or their respective board of directors as the context requires;

	•	“Group” refers to InterContinental Hotels Group PLC and its subsidiaries or, where appropriate, InterContinental Hotels Limited or Six Continents Limited and their subsidiaries as the context requires;

	•	“Hotels” or “IHG Hotels” refers to the hotels business of the Group;

	•	“IHG” refers to InterContinental Hotels Group PLC or, where appropriate, its board of directors;

	•	“IHL” refers to InterContinental Hotels Limited, previously InterContinental Hotels Group PLC, former parent company of the Group and re-registered as a private limited company on June 27, 2005;

	•	“MAB” or “Mitchells and Butlers” refers to Mitchells & Butlers plc;

	•	“ordinary share” or “share” refers, before April 14, 2003, to the ordinary shares of 28 pence each in Six Continents Limited; following that date and until December 10, 2004 to the ordinary shares of £1 each in IHL; following that date and until June 27, 2005 to the ordinary shares of 112 pence each in IHL and following June 27, 2005 to the ordinary shares of 10 pence each in IHG.

	•	“Six Continents” refers to Six Continents Limited; previously Six Continents PLC and re-registered as a private limited company on June 6, 2005;

	•	“Soft Drinks” and “Britvic business” refer to the soft drinks business of InterContinental Hotels Group PLC, which the Company had through its controlling interest in Britvic and which the Company disposed of by way of an initial public offering effective December 14, 2005; and

	•	“VAT” refers to UK value added tax levied by HM Customs & Excise on certain goods and services.

References in this document to the “Companies Act” mean the Companies Act 1985, as amended, of Great Britain; references to the “EU” mean the European Union; references in this document to “UK” refer to the United Kingdom of Great Britain and Northern Ireland.

The Company publishes its Consolidated Financial Statements expressed in UK pounds sterling. In this document, references to “US dollars”, “US$”, “$” or “¢” are to United States (“US”) currency, references to “euro” or “€” are to the euro, the currency of the European Economic and Monetary Union, references to “pounds sterling”, “sterling”, “£”, “pence” or “p” are to UK currency and references to “A$” are to Australian (“A”) currency. Solely for convenience, this Annual Report on Form 20-F contains translations of certain pound sterling amounts into US dollars at specified rates. These translations should not be construed as representations that the pound sterling amounts actually represent such US dollar amounts or could be converted into US dollars at the rates indicated. Unless otherwise indicated, the translations of pounds sterling into US dollars have been made at the rate of £1.00 = $1.73, the noon buying rate in The City of New York for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”) on December 31, 2005. On March 28, 2006 the Noon Buying Rate was £1.00 = $1.75. For information regarding rates of exchange between pounds sterling and US dollars from fiscal 2001 to the present, see “Item 3. Key Information — Exchange Rates”.

The Company’s fiscal year ends on December 31. The December 31 fiscal year end is in line with the calendar accounting year ends of the majority of comparable US and European hotel companies. IHG will continue to report on a December 31 fiscal year end basis, as the Group believes this facilitates more meaningful comparisons with other key participants in the industry. References in this document to a particular year are to the fiscal year unless otherwise indicated. For example, references to the year ended December 31, 2005 are shown as 2005 and references to the year ended December 31, 2004 are shown as 2004, unless otherwise specified, references to the fiscal period ended December 31, 2003, are shown as 2003 and references to other fiscal years are shown in a similar manner.

The Company’s Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) which differ from the accounting principles generally accepted in the United States (“US GAAP”). The significant differences applicable to the Group are explained in Note 32 of Notes to the Financial Statements.

IHG believes that the reporting of profit and earnings measures before other operating income and expenses provides additional meaningful information on underlying returns and trends to shareholders. The Group’s key performance indicators used in budgets, monthly reporting, forecasts, long-term planning and incentive plans for internal financial reporting focus primarily on profit and earnings measures before other operating income and expenses. Throughout this document earnings per share is also calculated excluding the effect of all other operating income and expenses, special interest, special tax and gain on disposal of assets and is referred to as adjusted earnings per share.

The Company furnishes JP Morgan Chase Bank, N.A., as Depositary, with annual reports containing Consolidated Financial Statements and an independent auditor’s opinion thereon. These Financial Statements are prepared on the basis of IFRS. The annual reports contain reconciliations to US GAAP of net income and shareholders’ equity. The Company also furnishes the Depositary with semi-annual reports prepared in conformity with IFRS, which contain unaudited interim consolidated financial information. Upon receipt thereof, the Depositary mails all such reports to registered holders of American Depositary Receipts (“ADRs”) evidencing American Depositary Shares (“ADSs”). The Company also furnishes to the Depositary all notices of shareholders’ meetings and other reports and communications that are made generally available to shareholders of the Company. The Depositary makes such notices, reports and communications available for inspection by registered holders of ADRs and mails to all registered holders of ADRs notices of shareholders’ meetings received by the Depositary. The Company is not required to report quarterly financial information. During 2005, the Company reported interim financial information at June 30, 2005 in accordance with the Listing Rules of the UK Listing Authority. In addition, it provided a trading update at March 31, 2005 and at September 30, 2005 and intends to continue to provide quarterly financial information during fiscal 2006, although it has not made any decision with respect to reporting quarterly financial information after 2006.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 20-F contains certain forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 with respect to the financial condition, results of operations and business of the Group and certain of the plans and objectives of the board of directors of InterContinental Hotels Group PLC with respect thereto. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use such words as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe” or other words of similar meanings. Such statements in the Form 20-F include, but are not limited to, statements under the following headings: (i) “Item 4. Information on the Company”; (ii) “Item 5. Operating and Financial Review and Prospects”; (iii) “Item 8. Financial Information”; and (iv) “Item 11. Quantitative and Qualitative Disclosures About Market Risk”. Specific risks faced by the Company are described under “Item 3. Key Information — Risk Factors” commencing on page 13. By their nature, forward-looking statements involve risk and uncertainty, and the factors described in the context of such forward-looking statements in this Form 20-F could cause actual results and developments to differ materially from those expressed in or implied by such forward-

looking statements. These factors include, among others, the risks involved with the Group’s reliance on brands and protection of intellectual property rights and the reliance on consumer perception of its brands, the risks relating to identifying, securing and retaining management and franchise agreements, the effect of political and economic developments, the ability to recruit and retain key personnel, the risks involved with the Group’s reliance on technologies and systems and with developing and employing new technologies and systems, the Group’s ability to maintain adequate insurance, the future balance between supply and demand for the Group’s hotels, events that adversely impact domestic or international travel, including terrorist incidents and epidemics such as Severe Acute Respiratory Syndrome (“SARS”) or avian flu, the risk of failures in the Group’s proprietary reservation system and increased competition in reservation infrastructure, the lack of selected development opportunities, the risks of litigation, the risks associated with its ability to borrow and satisfy debt covenants, compliance with data privacy regulations and risks associated with funding the defined benefits under its pension schemes.

PART I


ITEM 1.	*IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS*

Not applicable.


ITEM 2.	*OFFER STATISTICS AND EXPECTED TIMETABLE*

Not applicable.


ITEM 3.	*KEY INFORMATION*

SELECTED CONSOLIDATED FINANCIAL INFORMATION

Summary

The selected consolidated financial data set forth below for the years ended December 31, 2005 and 2004 has been prepared for the first time in line with International Financial Reporting Standards (“IFRS”) and is derived from the Consolidated Financial Statements of the Group, which have been audited by its independent registered public accounting firm, Ernst & Young LLP, restated where appropriate to accord with the Group’s current accounting policies and presentation. There is no available comparative data for the years ended prior to December 31, 2004 as consolidated financial data were prepared in accordance with accounting principles generally accepted in the United Kingdom (“UK GAAP”). The selected consolidated financial data set forth below should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report.


	*Consolidated Profit and Loss Account Data*


		Years ended December 31,

		2005⁽¹⁾⁽²⁾			2005⁽¹⁾			2004⁽¹⁾

		$			£			£
		(in millions, except per share and ADS amounts)
Amounts in accordance with IFRS
Revenue:
	Continuing operations		1,555			852			731
	Discontinued operations		1,931			1,058			1,473

			3,486			1,910			2,204

Total operating profit before other operating income and expenses:
	Continuing operations		347			190			134
	Discontinued operations		272			149			212

			619			339			346

Other operating income and expenses:
	Continuing operations		(40	)		(22	)		(49	)

			(40	)		(22	)		(49	)

Total operating profit:
	Continuing operations		307			168			85
	Discontinued operations		272			149			212

			579			317			297

Financial income			55			30			70
Financial expenses			(115	)		(63	)		(103	)

Profit before tax			519			284			264
Tax			(146	)		(80	)		127

Profit after tax			373			204			391
Gain on disposal of assets, net of tax			568			311			19

Profit available for shareholders			941			515			410

Attributable to:
	Equity holders of the parent		906			496			383
	Minority equity interest		35			19			27

Profit for the year			941			515			410

Earnings per ordinary share:
	Basic		173.9	¢		95.2	p		53.9	p
	Diluted		170.0	¢		93.1	p		53.3	p
	Adjusted⁽⁴⁾		69.9	¢		38.2	p		33.9	p

Footnotes on page 10.


												Three months			12 months			15 months
												ended			ended			ended			Year ended
			Year ended December 31,									December 31,			December 31,			December 31,			September 30,

			2005⁽¹⁾⁽²⁾			2005⁽¹⁾			2004⁽¹⁾			2002			2003			2003⁽¹⁾			2002⁽¹⁾			2001⁽¹⁾

			$			£			£			£			£			£			£			£
			(in millions, except per share and ADS amounts)
Amounts in accordance with US GAAP
Income/(loss) before cumulative effect on prior years of change in accounting principle:
	Continuing operations			189			104			257			14			(63	)		(49	)		102			130
	Discontinued operations:
		Income from discontinued operations		75			41			62			46			92			138			226			521
		Surplus on disposal		384			210			21			—			—			—			171			25

	Total discontinued operations			459			251			83			46			92			138			397			546
Cumulative effect on prior years of adoption of FAS 142				—			—			—			(712	)		—			(712	)		—			—

	Net income/(loss)			648			355			340			(652	)		29			(623	)		499			676

Per ordinary share and American Depositary Share⁽⁵⁾
Basic
Income/(loss) before cumulative effect on prior years of change in accounting principle:
	Continuing operations			36.4	¢		20.0	p		36.2	p		1.9	p		(8.6	)p		(6.7	)p		14.0	p		17.8	p
	Discontinued operations			88.0	¢		48.2	p		11.7	p		6.3	p		12.6	p		18.9	p		54.3	p		74.6	p
Cumulative effect on prior years of adoption of FAS 142				—			—			—			(97.1	)p		—			(97.1	)p		—			—

Net income/(loss)				124.4	¢		68.2	p		47.9	p		(88.9	)p		4.0	p		(84.9	)p		68.3	p		92.4	p

Diluted
Income/(loss) before cumulative effect on prior years of change in accounting principle:
	Continuing operations			35.6	¢		19.5	p		35.7	p		1.9	p		(8.6	)p		(6.7	)p		13.9	p		17.7	p
	Discontinued operations			86.0	¢		47.1	p		11.5	p		6.3	p		12.6	p		18.9	p		54.1	p		74.2	p
Cumulative effect on prior years of adoption of FAS 142				—			—			—			(97.1	)p		—			(97.1	)p		—			—

Net income/(loss)				121.6	¢		66.6	p		47.2	p		(88.9	)p		4.0	p		(84.9	)p		68.0	p		91.9	p

Footnotes on page 10.


	*Consolidated Balance Sheet Data*


	December 31,

	2005⁽³⁾		2005		2004

	$		£		£
	(in millions)
Amounts in accordance with IFRS
Goodwill and intangible assets		411		238		206
Property, plant and equipment		2,340		1,356		1,926
Investments and other financial assets		267		155		122
Current assets		1,220		707		598
Non-current assets classified as held for sale		481		279		1,826
Total assets		4,719		2,735		4,678

Current liabilities⁽⁶⁾		1,370		794		926
Long-term debt⁽⁶⁾		707		410		1,156
Share capital		85		49		723
IHG shareholders’ equity		1,870		1,084		1,821


	December 31,

	2005⁽³⁾		2005		2004		2003		2002		2001

	$		£		£		£		£		£
	(in millions)
Amounts in accordance with US GAAP
Goodwill and intangible assets		2,407		1,395		1,384		1,587		2,702		2,902
Property, plant and equipment		2,905		1,684		3,454		3,916		6,552		6,343
Investments and other financial assets		243		141		115		174		189		205
Current assets		1,284		744		699		978		983		1,209
Non-current assets classified as held for sale		445		258		300		—		—		—
Total assets		7,284		4,222		5,952		6,655		10,426		10,659

Current liabilities⁽⁶⁾		2,112		1,224		2,021		1,496		2,109		2,033
Long-term debt⁽⁶⁾		62		36		52		523		622		779
Share capital		74		43		697		739		243		242
IHG shareholders’ equity		3,477		2,015		2,796		3,380		6,221		6,381


(1)	The results for 2002 and 2001 include 52 weeks (Hotels 12 months). Fiscal 2003 reflects 15 months trading for Hotels, Soft Drinks 64 weeks ended December 20, 2003 and Mitchells and Butlers plc which reflects 28 weeks ended April 12, 2003. For the year 2004, Hotels include 12 months and Soft Drinks 53 weeks ended December 25, 2004. For the year 2005, Hotels include 12 months and Soft Drinks 50 weeks and three days ended December 14, 2005.

(2)	US dollar amounts have been translated at the weighted average rate for the year of £1.00 = $1.83 solely for convenience.

(3)	US dollar amounts have been translated at the Noon Buying Rate on December 31, 2005 of £1.00 = $1.73 solely for convenience.

(4)	Adjusted earnings per share are disclosed in order to show performance undistorted by other operating income and expenses, abnormal interest and tax and gain on disposal of assets.

(5)	Each American Depositary Share represents one ordinary share.

(6)	Long-term debt under IFRS includes amounts supported by long-term credit facilities, which are classified as current liabilities under US GAAP.

Dividends

InterContinental Hotels Group PLC paid an interim dividend of 4.6 pence per share on October 17, 2005. The IHG board has proposed a final dividend of 10.7 pence per share, payable on June 5, 2006, if approved by

shareholders at the Annual General Meeting to be held on June 1, 2006, bringing the total IHG dividend for the year ended December 31, 2005 to 15.3 pence per share.

On March 2, 2006, IHG announced its intention to pay a £500 million special dividend to shareholders during the second quarter of 2006.

The table below sets forth the amounts of interim, final and total dividends on each ordinary share in respect of each fiscal year indicated. Comparative dividends per share have been restated using the aggregate of the weighted average number of shares of InterContinental Hotels Group PLC (as IHL then was) and Six Continents PLC (as Six Continents then was), adjusted to equivalent shares of InterContinental Hotels Group PLC. For the purposes of showing the dollar amounts per ADS, such amounts are before deduction of UK withholding tax (as described under “Item 10. Additional Information — Taxation”) and are translated into US dollars per ADS at the Noon Buying Rate on each of the respective UK payment dates.

Ordinary dividend


	Pence per ordinary share						$ per ADS

	Interim		Final		Total		Interim		Final			Total

Year ended September 30,
2001⁽¹⁾		12.27		28.20		40.47		0.177		0.406			0.583
2002⁽¹⁾		12.58		29.14		41.72		0.205		0.474			0.679
Period ended December 31, 2003
Six Continents⁽¹⁾		7.65		—		7.65		0.119		—			0.119
IHG		4.05		9.45		13.50		0.068		0.174			0.242
Year ended December 31,
2004		4.30		10.00		14.30		0.077		0.191			0.268
2005		4.60		10.70		15.30		0.081		0.187	⁽²⁾		0.268


(1)	Restated to reflect an equivalent number of shares in InterContinental Hotels Group PLC.

(2)	The 2005 final dividend payable to ADS holders will be paid in USD and was set using the closing USD/GBP spot rate of February 28, 2006.

Special Dividend


	Pence per
	ordinary share		$ per ADS

December 2004		72.00		1.39


	*Exchange Rates*

The following tables show, for the periods and dates indicated, certain information regarding the exchange rate for pounds sterling, based on the Noon Buying Rate for pounds sterling expressed in US dollars per £1.00. The exchange rate on March 17, 2006 was £1.00 = $1.76.


	Month’s		Month’s
	highest		lowest
Month	exchange rate		exchange rate

September 2005		1.84		1.76
October 2005		1.79		1.75
November 2005		1.78		1.71
December 2005		1.77		1.72
January 2006		1.79		1.74
February 2006		1.78		1.73
March 2006 (through March 17, 2006)		1.76		1.73


	Period		Average
	end		rate⁽¹⁾		High		Low

Year ended September 30,
2001		1.47		1.44		1.50		1.37
2002		1.56		1.48		1.58		1.41
Period ended December 31,
2003		1.78		1.63		1.78		1.54
Year ended December 31,
2004		1.93		1.84		1.95		1.75
2005		1.73		1.82		1.93		1.71


(1)	The average of the Noon Buying Rate on the last day of each full month during the period.

A significant portion of the Group’s assets, liabilities and revenues are denominated in currencies other than pounds sterling, principally the US dollar and the euro. For a discussion of the impact of exchange rate movements, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

RISK FACTORS

This section describes some of the risks that could materially affect the Group’s business. The factors below should be considered in connection with any financial and forward-looking information in this Form 20-F and the cautionary note regarding forward-looking statements contained on pages 5 and 6.

The risks below are not the only ones that the Group faces. Some risks are not yet known to IHG and some that IHG does not currently believe to be material could later turn out to be material. All of these risks could materially affect the Group’s business, revenue, operating profit, earnings, net assets and liquidity and/or capital resources.


	*The Group is reliant on the reputation of its brands and the protection of its intellectual property rights*

An event that materially damages the reputation of one or more of the Group’s brands and/or failure to sustain the appeal of the Group’s brands to its customers could have an adverse impact on the value of that brand and subsequent revenues from that brand or business.

In addition, the value of the Group’s brands is influenced by a number of other factors including consumer preference and perception, commoditisation (whereby the price/quality becomes relatively more important than brand identifications), failure by the Group or its franchisees to ensure compliance with the significant regulations applicable to hotel operations (including fire and life safety requirements), or other factors affecting consumers’ willingness to purchase goods and services, including any factor which adversely affects the reputation of those brands.

In particular, the extent to which the Group is able to enforce adherence to its operating and quality standards, or the significant regulations applicable to hotel operations, pursuant to its management and franchise contracts may further impact brand reputation or customer perception and therefore the value of the hotel brands.

Given the importance of brand recognition to the Group’s business, the Group has invested considerable effort in protecting its intellectual property, including by registration of trademarks and domain names. If the Group is unable to protect its intellectual property, any infringement or misappropriation could materially harm its future financial results and ability to develop its business.


	*The Group is exposed to a variety of risks related to identifying, securing and retaining management and franchise agreements*

The Group’s growth strategy depends on its success in identifying, securing and retaining management and franchise agreements. Competition with other hotel companies may generally reduce the number of suitable management, franchise and investment opportunities offered to the Group, and increase the bargaining power of property owners seeking to engage a manager or become a franchisee. The terms of new management or franchise agreements may not be as favourable as current arrangements and the Group may not be able to renew existing arrangements on the same terms.

There can also be no assurance that the Group will be able to identify, retain or add franchisees to the Group system or to secure management contracts. For example, the availability of suitable sites, planning and other local regulations or the availability of finance may all restrict the supply of suitable hotel development opportunities under franchise or management agreements. There are also risks that significant franchisees or groups of franchisees may have interests that conflict, or are not aligned, with those of the Group. In connection with entering into management or franchise agreements, the Group may be required to make investments in or guarantee the obligations of third parties or guarantee minimum income to third parties. Changes in legislation or regulatory changes may be implemented that have the effect of favouring franchisees relative to brand owners.


	*The Group is exposed to the risks of political and economic developments*

These include the risks of global and regional adverse political, economic and financial market developments, including recession, inflation and currency fluctuations that could lower revenues and reduce income. A recession would adversely affect room rates and/or occupancy levels and other income-generating activities resulting in deterioration of results of operations and potentially affecting the value of properties in affected economies.

Further political or economic factors or regulatory action could effectively prevent the Group from receiving profits from, or selling its investments in, certain countries, or otherwise adversely affect operations. For example, changes to tax rates or legislation in the jurisdictions in which the Group operates could decrease the proportion of profits the Group is entitled to retain, or the Group’s interpretation of various tax laws and regulations may prove to be incorrect, resulting in higher than expected tax charges. In addition, fluctuations in currency exchange rates between sterling, the currency in which the Group reports its financial statements, and the US dollar and other currencies in which the Group’s international operations or investments do business, could adversely affect the Group’s reported earnings and the value of its business. Fluctuations of this type have been experienced over recent years with the significant strengthening of the pound against the dollar. As the Group’s profits have become increasingly weighted towards North America, such fluctuations may have greater impact on the Group’s reported results.


	*The Group is dependent upon recruiting and retaining key personnel and developing their skills*

In order to develop, support and market its products, the Group must hire and retain highly skilled employees with particular expertise. The implementation of the Group’s strategic business plans could be undermined by failure to recruit or retain key personnel, the unexpected loss of key senior employees, failures in the Group’s succession planning and incentive plans, or a failure to invest in the development of key skills. Additionally, unless skills are supported by a sufficient infrastructure to enable knowledge and skills to be passed on, the Group risks losing accumulated knowledge if key employees leave the Group.


	*The Group is exposed to certain risks in relation to technology and systems*

To varying degrees, the Group is reliant upon certain technologies and systems (including Information Technology systems) for the running of its business, particularly those which are highly integrated with business processes, and disruption to those technologies or systems could adversely affect the efficiency of the business, notwithstanding business continuity or disaster recovery processes. The Group may have to make substantial additional investments in new technologies or systems to remain competitive. Failing to keep pace with developments in technologies or systems may put the Group at a competitive disadvantage. The technologies or systems that the Group chooses may not be commercially successful or the technology or system strategy employed may not be sufficiently aligned to the needs of the business or responsive to changes in business strategy. As a result, the Group could lose customers, fail to attract new customers or incur substantial costs or face other losses. Additionally, failure to develop an appropriate e-commerce strategy and select the right partners could erode the Group’s market share.


	*The Group may face difficulties insuring its business*

Historically, the Group has maintained insurance at levels determined by it to be appropriate in light of the cost of cover and the risk profiles of the business in which it operates. However, forces beyond the Group’s control including market forces, may limit the scope of coverage the Group can obtain as well as the Group’s ability to obtain coverage at reasonable rates. Other forces beyond the Group’s control, such as terrorist attacks or natural disasters may be uninsurable or simply too expensive to insure against. Inadequate or insufficient insurance could expose the Group to large claims or could result in the loss of capital invested in properties as well as the anticipated future revenue from properties, and could leave the Group responsible for guarantees, debt or other financial obligations related to the property.


	*The Group is exposed to the risks of the hotel industry supply and demand cycle*

The future operating results of the Group could be adversely affected by industry over-capacity (by number of rooms) and weak demand or other differences between planning assumptions and actual operating conditions. Reductions in room rates and occupancy levels would adversely impact the results of operations of the Group.


	*The Group is exposed to the risk of events that adversely impact domestic or international travel*

The room rates and occupancy levels of the Group could be adversely impacted by events that reduce domestic or international travel, such as actual or threatened acts of terrorism or war, epidemics (such as SARS and avian flu), travel-related accidents, travel-related industrial action, increased transportation and fuel costs and natural disasters resulting in reduced worldwide travel or other local factors impacting individual hotels. A decrease in the demand for hotel rooms as a result of such events may have an adverse impact on the Group’s operations and financial results. In addition, inadequate preparedness, contingency planning or recovery capability in relation to a major incident or crisis may prevent operational continuity and consequently impact the value of the brand or the reputation of the Group.


	*The Group is reliant upon its proprietary reservation system and is exposed to the risk of failures in the system and increased competition in reservation infrastructure*

The value of the brands of the Group is partly derived from the ability to drive reservations through its proprietary HolidexPlus reservation system, an electronic booking and delivery channel directly linked to travel agents, hotels and internet networks. Inadequate disaster recovery arrangements, or inadequate continued investment in this technology, leading to loss of key communications linkages, particularly in relation to HolidexPlus, internet reservation channels and other key parts of the IT infrastructure for a prolonged period, or permanently, may result in significant business interruption and subsequent impact on revenues.

The Group is also exposed to the risk of competition from third-party intermediaries who provide reservation infrastructure. In particular, any significant increase in the use of these reservation channels in preference to proprietary channels may impact the Group’s ability to control the supply, presentation and price of its room inventory.


	*The Group may experience a lack of selected development opportunities*

While the strategy of the Group is to extend the hotel network through activities that do not involve significant capital, in some cases the Group may consider it appropriate to acquire new land or locations for the development of new hotels. If the availability of suitable sites becomes limited, this could adversely affect its results of operations.


	*The Group is exposed to the risk of litigation*

The Group could be at risk of litigation from its guests, customers, joint venture partners, suppliers, employees, regulatory authorities, franchisees and/or the owners of hotels managed by it for breach of its contractual or other duties. Claims filed in the US may include requests for punitive damages as well as compensatory damages. Exposure to litigation or fines imposed by regulatory authorities may affect the reputation of the Group even though the monetary consequences are not significant.


	*The Group is exposed to a variety of risks associated with its ability to borrow and satisfy debt covenants*

The Group is reliant on having access to borrowing facilities to meet its expected capital requirements and to maintain an efficient balance sheet. The majority of the Group’s borrowing facilities are only available if the financial covenants in the facilities are complied with. If the Group is not in compliance with the covenants, the lenders may demand the repayment of the funds advanced. If the Group’s financial performance does not meet market expectations it may not be able to refinance its existing facilities on terms

it considers favourable. The availability of funds for future financing is in part dependent on conditions and liquidity in the capital markets.


	*The Group is required to comply with data privacy regulations*

Existing and emerging data privacy regulations limit the extent to which the Group can use customer information for marketing or promotional purposes. Compliance with these regulations in each jurisdiction in which the Group operates may require changes in marketing strategies and associated processes which could increase operating costs or reduce the success with which products and services can be marketed to existing or future customers. In addition, non-compliance with privacy regulations may result in fines, damage to reputation or restrictions on the use or transfer of information.


	*The Group is exposed to funding risks in relation to the defined benefits under its pension plans*

The Group is required by law to maintain a minimum funding level in relation to its ongoing obligation to provide current and future pensions for members of its pension plans who are entitled to defined benefits. In addition, if any plan of the Group is wound-up, the Group could become statutorily liable to make an immediate payment to the trustees to bring the funding of these defined benefits to a level which is higher than this minimum. The contributions payable by the Group must be set with a view to making prudent provision for the benefits accruing under the plans of the Group.

Some of the issues which could adversely affect the funding of these defined benefits (and materially affect the Group’s funding obligations) include: (i) poor investment performance of pension fund investments; (ii) long life expectancy (which will make pensions payable for longer and therefore more expensive to provide); (iii) adverse annuity rates (which tend in particular to depend on prevailing interest rates and life expectancy) as these will make it more expensive to secure pensions with an insurance company; and (iv) other events occurring which make past service benefits more expensive than predicted in the actuarial assumptions by reference to which the Group’s past contributions were assessed.

The trustees of the UK defined benefits plans can demand increases to the contribution rates relating to the funding of those pension plans, which would oblige the relevant members of the Group to contribute extra amounts to such pension funds. The trustees must consult the plans’ actuary and principal employer before exercising this power. In practice, contribution rates are agreed between the Group and the trustees on actuarial advice, and are set for three-year terms. The last such review was as at March 31, 2004. As at March 17, 2006, being the latest practicable date prior to publication of this document, the Directors are not aware of any circumstances that would cause the trustees to deem it necessary to unilaterally increase the contribution rates.


ITEM 4.	*INFORMATION ON THE COMPANY*

SUMMARY


	*Group Overview*

The Group is a worldwide owner, operator and franchisor of hotels and resorts. Through its various subsidiaries it owned, managed, leased or franchised over 3,600 hotels and 537,000 guest rooms in nearly 100 countries and territories around the world, as at December 31, 2005. The Group’s brands include InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels & Resorts, Holiday Inn Express, Staybridge Suites, Candlewood Suites and Hotel Indigo. The Group also manages the hotel loyalty program, Priority Club Rewards.

With the disposal of the Group’s interests in Britvic, a manufacturer and distributor of soft drinks in the United Kingdom, by way of an initial public offering (“IPO”) in December 2005, the Group is now focused solely on hotel franchising, management and ownership.

operates third-parties’ hotels, and franchise and other fees paid under franchise agreements and (ii) until December 14, 2005, the manufacture and distribution of soft drinks.

On March 17, 2006, InterContinental Hotels Group PLC had a market capitalization of approximately £3.9 billion, and was included in the list of FTSE 100 companies, a list of the 100 largest companies by market capitalization on the London Stock Exchange. Following a capital restructuring in June 2005, InterContinental Hotels Group PLC became the holding company for the Group. Six Continents Limited (formerly Six Continents PLC), which was formed in 1967, is the principal subsidiary company.

The Company’s corporate headquarters are in the United Kingdom, and the registered address is:

InterContinental Hotels Group PLC

67 Alma Road

Windsor

Berkshire SL4 3HD

Tel: +44 (0) 1753 410 100

Internet address: www.ihgplc.com

InterContinental Hotels Group PLC was incorporated in Great Britain on May 21, 2004 and registered in, and operates under, the laws of England and Wales. Operations undertaken in countries other than England and Wales are under the laws of those countries in which they reside.


	*Group History and Recent Developments*

The Group, formerly known as Bass and, more recently, Six Continents, was historically a conglomerate operating as, among other things, a brewer, soft drinks manufacturer, hotelier, leisure operator, and restaurant, pub and bar owner. In the last several years, the Group has undergone a major transformation in its operations and organization, as a result of the Separation (as discussed below) and a number of significant disposals during this period, which has narrowed the scope of its business.

On April 15, 2003, following shareholder and regulatory approval, Six Continents PLC (as it then was) separated into two new listed groups, InterContinental Hotels Group PLC (as it then was) comprising the Hotels and Soft Drinks businesses and Mitchells & Butlers plc comprising the Retail and Standard Commercial Property Developments businesses (the “Separation”).


	*Acquisitions and Dispositions*

Since the Separation in April 2003, the Group has sold or announced the sale of 168 hotels for aggregate proceeds of approximately £2.5 billion (see Figure 1). Of these 168 hotels, 150 have remained in the IHG system under Group brands through either franchise or management agreements. As of March 17, 2006 the Group had on the market a further seven InterContinental hotels all in Continental Europe. The following are the more significant portfolio transactions:

On July 1, 2003, the Group completed the sale of a 16 property Staybridge Suites portfolio to Hospitality Properties Trust (“HPT”) for $185 million. The Group entered into a contract with HPT for the ongoing management of these hotels. In September 2003, HPT converted 14 other suite hotels to the Staybridge Suites brand under IHG management.

In October 2003, the Group announced the acquisition of the Candlewood Suites brand in the United States from Candlewood Hotel Corporation for a consideration of $15 million and an agreement to enter into a management contract with HPT to manage 76 Candlewood Suites properties. The transaction completed on December 31, 2003.

On December 17, 2004, the Group announced the sale of 13 hotels, in the United States, Puerto Rico and Canada, to HPT. The total consideration payable by HPT for the sale amounted to $425 million, before transaction costs, equivalent to net book value, of which $395 million was received upon the main completion of the sale on February 16, 2005, with the remaining $30 million received upon the completion of the sale of the InterContinental Hotel in Austin, Texas on June 1, 2005. The Group continues to manage the hotels

(other than the InterContinental in Puerto Rico) under a 25 year management contract with HPT. The Group has two consecutive options to extend the contracts for 15 years each, giving a total potential contract length of up to 55 years. The InterContinental San Juan in Puerto Rico has been leased back to the Group under a 25 year lease with two consecutive options to extend the lease for 15 years each, giving a total potential lease length of up to 55 years.

On February 28, 2005, the Group announced the acquisition by Strategic Hotels Capital, Inc. (“SHC”) of 85% interests in two hotels in the United States. IHG received approximately $287 million in cash before transaction costs, based upon a total value for both hotels of $303.5 million, $12 million in excess of net book value. This transaction completed on April 1, 2005. IHG continues to manage these hotels under a 20 year management contract with three options to extend for a further 10 years each.

On March 10, 2005, the Group announced the sale of 73 hotels in the United Kingdom to LRG Acquisition Limited (“LRG”), a consortium comprising Lehman Brothers Real Estate Partners, GIC Real Estate and Realstar Asset Management. The transaction completed on May 24, 2005, with IHG receiving an initial £960 million in cash, before transaction costs, with a further £40 million to be received subject to meeting performance targets over the following three years. IHG entered into a management agreement on completion of this transaction with LRG for 63 of the hotels and currently operates a further five hotels under a temporary management agreement. One of the 63 hotels managed by IHG was removed from the IHG system on March 14, 2006.

On September 1, 2005 the Group announced the sale of nine hotels in Australia and New Zealand to Eureka Funds Management Ltd (“Eureka”) for A$390 million in cash, before transaction costs, and the sale of the Holiday Inn, Suva, to a subsidiary of Fiji National Provident Fund (“FNPF”) for A$15 million in cash. Both transactions completed by October 31, 2005. IHG entered into management agreements on completion of these transactions with Eureka and FNPF for these hotels.

On September 8, 2005 the Group announced the sale of InterContinental Hotel Paris for € 315 million. The transaction completed on November 1, 2005 at which time the hotel was removed from the IHG system.

In a number of smaller transactions during 2005, the Group completed the sale of a further 13 hotels for proceeds of approximately £159 million.

On January 25, 2006, the Group announced the sale to HPT of two hotels in the Americas. On March 13, 2006, the Group announced the sale to Westbridge Hospitality Fund LP, (“Westbridge”), of 24 hotels in the Europe, Middle East and Africa (“EMEA”) region. Westbridge is a joint venture between CADIM, a Montreal-based pension fund manager, and Westmont Hospitality, one of IHG’s largest franchisees. The portfolio has been sold for €352 million marginally above net asset value. IHG’s share of the proceeds is €345.2 million, before transaction costs, in cash and debt assumption, and the balance of € 6.8 million relates to third-party minority interests. IHG will franchise the hotels to the joint venture under 15 year franchise contracts.

The Group has a further seven hotels in the EMEA region on the market. The book value of these hotels is approximately £300 million and they constitute the final tranche of hotels that IHG had previously announced it would sell.

The asset disposal program which commenced in 2003 has significantly reduced the capital intensity of the Group whilst largely retaining the hotels in the IHG system through management and franchise agreements.

Capital expenditure in 2005 totaled £183 million compared with £257 million in 2004. Capital expenditure for Hotels totaled £136 million, lower than 2004 as the Group continued its asset disposal program. Capital expenditure in 2005 for Hotels included the InterContinental London and Holiday Inn Munich refurbishments and a rolling rooms refurbishment program at the InterContinental Hong Kong.

At December 31, 2005 capital committed, being contracts placed for expenditure on property, plant and equipment not provided for in the financial statements, totaled £76 million.

Following the completion of the expected hotel disposals in 2006, the Group will own 22 hotels.

FIGURE 1


Asset disposal program detail	Number of hotels		Proceeds		Net book value

			(£ billion)
Disposed to date		168		2.5		2.5
On the market		7		—		0.3
Remaining hotels		22		—		0.9


	*Return of Funds*

Since the Separation in April 2003, the Group has announced the return of £2.75 billion of funds to shareholders by way of special dividends, share repurchase programs and capital returns (see Figure 2).

In 2005, 30.6 million shares were repurchased at an average price of 672 pence per share (total £206 million) as part of the second £250 million share repurchase program. On September 8, 2005, IHG announced a further £250 million share repurchase program to commence on completion of the second program. The precise timing of share purchases will be dependent upon, amongst other things, market conditions. By March 17, 2006, a total of 33.95 million shares had been repurchased under the second repurchase program at an average price per share of 686 pence per share (approximately £233 million). Purchases are made under the existing authority from shareholders which will be renewed at the Company’s Annual General Meeting. Any shares repurchased under these programs will be canceled.

Information relating to the purchases of equity securities can be found in Item 16E.

IHG returned a further £996 million to shareholders in July 2005 following its capital restructuring which enabled it to release the proceeds received in connection with the hotels disposals. Under the capital restructuring, shareholders received 11 new ordinary shares and £24.75 cash in exchange for every 15 existing ordinary shares held on June 24, 2005.

On March 2, 2006, IHG announced that it intends to pay a £500 million special dividend to shareholders during the second quarter of 2006.

FIGURE 2


Return of funds program	Timing		Total return		Returned to date⁽ⁱ⁾		Still to be returned

					(£ million)
£501 million special dividend		Paid December 2004		501		501		Nil
First £250 million share buyback		Completed in 2004		250		250		Nil
Second £250 million share buyback		Ongoing		250		233		17
£996 million capital return		Paid 8 July 2005		996		996		Nil
Third £250 million share buyback		Yet to commence		250		—		250
£500 million special dividend		Second quarter 2006		500		—		500

Total				2,747		1,980		767

(i) As at March 17, 2006.


	*Hotels*

Hotels owns a number of hotel brands including InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels & Resorts, Holiday Inn Express (or Express by Holiday Inn outside of the Americas) (“Express”), Staybridge Suites, Candlewood Suites and Hotel Indigo, which at December 31,

2005 comprised over 3,600 franchised, managed, owned or leased hotels and 537,000 guest rooms in nearly 100 countries and territories.


	*Soft Drinks*

In December 2005 IHG disposed of its interests in Britvic, one of the two leading manufacturers of soft drinks by value and volume in Great Britain, by way of IPO. IHG received aggregate proceeds of approximately £371 million (including two additional dividends, one of £47 million received in November 2005 and another of £89 million received in May 2005, but before any commissions or expenses). The Group results include the results of Soft Drinks for the period up until the IPO of Britvic on December 14, 2005.

SEGMENTAL INFORMATION


	*Geographic Segmentation*

The following table shows revenue and operating profit before other operating income and expenses in pounds sterling and percentage by geographical area, for the following periods: year ended December 31, 2005 and year ended December 31, 2004.


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(£ million)
Revenue⁽¹⁾⁽⁴⁾
	Americas		400			319
	Europe, the Middle East and Africa		326			301
	Asia Pacific		84			71
	Central		42			40

Continuing operations			852			731

	Americas		45			176
	Europe, the Middle East and Africa		956			1,234
	Asia Pacific		57			63

Discontinued operations⁽³⁾			1,058			1,473

Total			1,910			2,204

Operating profit before other operating income and expenses⁽¹⁾⁽²⁾
	Americas		187			150
	Europe, the Middle East and Africa		47			24
	Asia Pacific		21			17
	Central		(65	)		(57	)

Continuing operations			190			134

	Americas		11			23
	Europe, the Middle East and Africa		127			182
	Asia Pacific		11			7

Discontinued operations⁽³⁾			149			212

Total			339			346

Footnotes on page 21.


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(%)
Revenue
	Americas		20.9			14.5
	Europe, the Middle East and Africa		17.1			13.7
	Asia Pacific		4.4			3.2
	Central		2.2			1.8

Continuing operations			44.6			33.2

	Americas		2.4			8.0
	Europe, the Middle East and Africa		50.0			56.0
	Asia Pacific		3.0			2.8

Discontinued operations			55.4			66.8

Total			100.0			100.0

Operating profit before other operating income and expenses
	Americas		55.2			43.4
	Europe, the Middle East and Africa		13.9			6.9
	Asia Pacific		6.2			4.9
	Central		(19.2	)		(16.5	)

Continuing operations			56.1			38.7

	Americas		3.2			6.6
	Europe, the Middle East and Africa		37.5			52.7
	Asia Pacific		3.2			2.0

Discontinued operations			43.9			61.3

Total			100.0			100.0


(1)	The results of overseas operations have been translated into sterling at weighted average rates of exchange for the period. In the case of the US dollar, the translation rate is 2005: £1 = $1.83; (2004: £1 = $1.82). In the case of the euro, the translation rate is 2005: £1 = €1.46; (2004: £1 = € 1.47).

(2)	Operating profit before other operating income and expenses does not include other operating income and expenses for all periods presented. Other operating income and expenses (charge unless otherwise noted) by region are the Americas (2005: £5 million; 2004: £15 million credit); Europe, the Middle East and Africa (2005: £12 million; 2004: £57 million); and Asia Pacific (2005: £5 million; 2004: £7 million).

(3)	Europe, the Middle East and Africa includes discontinued operations for Hotels (2005: £57 million; 2004: £105 million) and Soft Drinks (2005: £70 million; 2004: £77 million). The Americas and Asia Pacific discontinued operations all relate to Hotels. Hotels discontinued operations are all owned and leased.

(4)	Amounts are reported by origin. See Note 2 of Notes to the Financial Statements for details by destination, for which the amounts are not significantly different.


	*Activity Segmentation*

The following table shows revenue and operating profit before other operating income and expenses in pounds sterling by activity and the percentage contribution of each activity for the following periods: year ended December 31, 2005 and year ended December 31, 2004.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			(£ million)
Revenue⁽¹⁾
	Hotels
		Americas		400			319
		Europe, the Middle East and Africa		326			301
		Asia Pacific		84			71
		Central⁽⁴⁾		42			40

Continuing operations				852			731

	Hotels⁽³⁾
		Americas		45			176
		Europe, the Middle East and Africa		285			528
		Asia Pacific		57			63
	Soft Drinks			671			706

Discontinued operations				1,058			1,473

Total				1,910			2,204

Operating profit before other operating income and expenses⁽¹⁾⁽²⁾
	Hotels
		Americas		187			150
		Europe, the Middle East and Africa		47			24
		Asia Pacific		21			17
		Central⁽⁴⁾		(65	)		(57	)

Continuing operations				190			134

	Hotels⁽³⁾
		Americas		11			23
		Europe, the Middle East and Africa		57			105
		Asia Pacific		11			7
	Soft Drinks			70			77

Discontinued operations				149			212

Total				339			346

Footnotes on page 23.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			(%)
Revenue
	Hotels
		Americas		20.9			14.5
		Europe, the Middle East and Africa		17.1			13.7
		Asia Pacific		4.4			3.2
		Central		2.2			1.8

Continuing operations				44.6			33.2

	Hotels
		Americas		2.4			8.0
		Europe, the Middle East and Africa		14.9			24.0
		Asia Pacific		3.0			2.8
	Soft Drinks			35.1			32.0

Discontinued operations				55.4			66.8

Total				100.0			100.0

Operating profit before other operating income and expenses
	Hotels
		Americas		55.2			43.4
		Europe, the Middle East and Africa		13.9			6.9
		Asia Pacific		6.2			4.9
		Central		(19.2	)		(16.5	)

Continuing operations				56.1			38.7

	Hotels
		Americas		3.2			6.6
		Europe, the Middle East and Africa		16.8			30.3
		Asia Pacific		3.2			2.0
	Soft Drinks			26.7			22.4

	Discontinued operations			43.9			61.3

Total				100.0			100.0


(1)	The results of overseas operations have been translated into sterling at weighted average rates of exchange for the period. In the case of the US dollar, the translation rate is 2005: £1 = $1.83 (2004: £1 = $1.82). In the case of the euro, the translation rate is 2005: £1 = €1.46 (2004: £1 = € 1.47).

(2)	Operating profit before other operating income and expenses does not include other operating income and expenses for all periods presented. Other operating income and expenses items (charge unless otherwise noted) by business segment are the Americas (2005: £7 million; 2004: £15 million credit); Europe, the Middle East and Africa (2005: £10 million; 2004: £57 million); and Asia Pacific (2005: £5 million; 2004: £7 million).

(3)	Hotels discontinued operations are all owned and leased.

(4)	Central relates to global functions. Revenue relates to Holidex fee income.

HOTELS


	*Overview*

InterContinental Hotels Group is an international hotel business which owns a portfolio of well-recognized and respected hotel brands, including InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels & Resorts, Holiday Inn Express (Express by Holiday Inn outside the Americas), Staybridge Suites, Candlewood Suites and Hotel Indigo, with 3,606 franchised, managed, owned and leased hotels and 537,533 guest rooms across nearly 100 countries and territories as at December 31, 2005. Approximately 97% of the Group’s rooms are operated under managed and franchised models.

The Group operates in a global market, providing hotel rooms to guests. Total room capacity in hotels and similar establishments worldwide is estimated at 18.4 million rooms. This has been growing at approximately 3% per annum over the last five years. The hotel market is geographically concentrated with 12 countries accounting for two-thirds of worldwide hotel room supply. The Group has a leadership position (top three by room numbers) in six of these 12 countries — United States, United Kingdom, Mexico, Canada, Greater China and Australia — more than any other major hotel company.

The hotel market is, however, a fragmented market with the four largest companies controlling only 11% of the global hotel room supply and the ten largest controlling less than 20%. The Group is the largest of these companies (by room numbers), with a 3% market share. The major competitors in this market include other major global hotel companies, smaller hotel companies and independent hotels.

Within the global market, a relatively low proportion of hotel rooms are branded (see Figure 3), but there has been an increasing trend towards branded rooms and market research company, Mintel, estimates that the proportion of branded rooms in Europe has grown from 15% in 2000 to 25% in 2004. Larger branded companies are therefore gaining market share at the expense of smaller companies and independent hotels. The Group is well positioned to benefit from this trend. Hotel owners are increasingly recognising the benefits of belonging to a branded portfolio, particularly an extended brand family like the Group’s which can offer various brands to suit different opportunities owners may have. Furthermore, hotel ownership is increasingly being separated from hotel branding and this requires hotel owners to use third-parties like the Group to operate or brand their hotels.

FIGURE 3


Percentage of branded hotel rooms by region	2004

North America		65	%
Europe		25	%
South America		20	%
Middle East		25	%
East Asia		25	%

Source: Mintel

US market data shows a steady increase in demand in the hotel market, broadly in line with Gross Domestic Product, and shows growth of approximately 1 – 1.5% per annum in real terms since 1967, driven by a number of underlying trends:


	•	demographics — as the population ages, increased leisure time drives more travel and hotel visits;

	•	disposable income rising as the global population becomes older and wealthier;

	•	travel volumes increasing as low cost airlines grow rapidly;

	•	globalization of trade and tourism;


	•	the increasing affluence and freedom to travel of the Chinese middle class; and

	•	brand preference amongst consumers is increasing.

Suppressing this demand are potential negative trends including increased terrorism, health and environmental considerations and economic factors such as rising oil prices. Currently, however, there are no indications that demand is being significantly affected by these factors.

Supply growth in the industry is cyclical, averaging between zero and 5% per annum historically. The Group’s profit is to a large extent protected from supply pressure due to its model of third-party ownership of hotels under Group management and franchise contracts, although periods of extreme or prolonged pressure may adversely affect the Group.


	*Operations*

The Group currently operates through three distinct business models which offer different growth, return, risk and reward opportunities. The models are summarized as follows:

franchised, where Group companies neither own nor manage the hotel, but license the use of a Group brand and provide access to reservation systems, loyalty schemes and know-how. The Group derives revenues from a brand royalty or licensing fee, based on a percentage of room revenue. At the end of 2005, 75% of the Group’s rooms were franchised, with 87% of rooms in the Americas operating under this model.

managed, where in addition to licensing the use of a Group brand, a Group company manages the hotel for third-party owners. The Group derives revenues from base and incentive management fees and provides the system infrastructure necessary for the hotel to operate. Management contract fees are linked to total hotel revenue and may have an additional incentive fee linked to profitability and/or cash flow. The terms of these agreements vary, but are often long term (for example, 10 years or more). The Group company’s responsibilities under the management agreement typically include hiring, training and supervising the managers and employees that operate the hotels under the relevant brand standards. The Group company prepares annual budgets for the hotels that it manages, and the property owners are responsible for funding periodic maintenance and repair on a basis to be agreed with the Group company. In order to gain access to central reservation systems, global and regional brand marketing and brand standards and procedures the owners are typically required to make a further contribution. In certain cases, property owners may require performance targets, with consequences for management fees and sometimes the contract itself (including on occasion, the right of termination) if those targets are not met. At the end of 2005, 22% of the Group’s rooms were operated under management contracts.

owned and leased, where a Group company both owns (or leases) and operates the hotel and, in the case of ownership, takes all the benefits and risks associated with ownership. The Group has been selling a significant proportion of its owned and leased portfolio and in future expects to own only hotels where it is considered strategically important to do so. Rooms owned or leased by the Group at the end of 2005 represented 3% of the Group’s rooms.

In addition, the Group also makes equity investments in hotel ownership entities, where its equity investment is less than 100% and it participates in a share of the benefits and risks of ownership. A management contract is generally entered into as well as the equity investment.

The following table shows the number of hotels and rooms owned, managed or franchised by IHG at December 31, 2005, December 31, 2004 and December 31, 2003.


					Management
					contracts and joint
	Owned or leased				ventures				Franchised				Total

	No. of		No. of		No. of		No. of		No. of		No. of		No. of		No. of
	hotels		rooms		hotels		rooms		hotels		rooms		hotels		rooms

2005		55		15,485		504		121,249		3,047		400,799		3,606		537,533
2004		166		38,420		403		98,953		2,971		396,829		3,540		534,202
2003		171		39,459		423		103,440		2,926		393,419		3,520		536,318

The Group sets quality and service standards for all of its hotel brands (including those operated under management contract or franchise arrangements) and operates a customer satisfaction and hotel quality measurement system to ensure those standards are met or exceeded. The quality measurement system includes an assessment of both physical property and customer service standards.


	*Strategy*

The Group’s strategy is to become the preferred hotel company for guests and owners, by building the strongest operating system in the industry, focused on the biggest markets and segments where scale really counts.

The Group has four stated strategic priorities:


	•	brand performance — to operate a portfolio of brands attractive to both owners and guests, that have clear market positions in relation to competitors;

	•	excellent hotel returns — to generate higher owner returns through revenue delivery and improved operating efficiency;

	•	market scale and knowledge — to accelerate profitable growth in the largest markets where the Group currently has scale; and

	•	aligned organization — to create a more efficient organization with strong core capabilities.

Executing the four strategic priorities is designed to achieve:


	•	organic growth, from June 2005, of 50,000 to 60,000 net rooms by the end of 2008 taking total room numbers from approximately 538,000 to approximately 588,000 to 598,000;

	•	out-performance of Total Shareholder Return (“TSR”) against a competitor set; and

	•	improved Return on Capital Employed (“ROCE”).

Growth is expected to come predominantly from managing and franchising rather than owning hotels. The managed and franchised model is attractive because it enables the Group to achieve its goals with limited capital. With a relatively fixed cost base, such growth yields high incremental margins for the Group, and is primarily how the Group has grown to date. For this reason, the Group has executed a disposal program of its owned hotels, releasing capital and enabling returns of funds to shareholders (see “Item 3. Key Information — Risk Factors”).

The main characteristic of the managed and franchised business model on which the Group has focused is that it is highly cash generative, with high ROCE. Over 3,500 hotels operating under Group brands are managed or franchised.

The Group aims to deliver its growth targets through one of the strongest operating systems in the industry which includes:


	•	a strong brand portfolio across the major markets, including two iconic brands: InterContinental and Holiday Inn;


	•	market coverage — a presence in nearly 100 countries and territories;

	•	hotel distribution — 3,606 hotels, 537,533 rooms, 126 million guest stays per annum;

	•	IHG global reservation channels delivering over $4.8 billion of rooms sales value to owners of Group managed hotels, franchisees and to the Group itself (“global system rooms sales”) in 2005, including $1.7 billion global system rooms sales from the internet. IHG reservation systems take over 22 million calls per annum;

	•	A loyalty program, Priority Club Rewards, contributing $3.8 billion of global system rooms sales; and

	•	A strong web presence — holiday-inn.com is the industry’s most visited site, with 75 million total site visits per annum.

With a clear target for rooms’ growth and many brands with significant market premiums offering excellent returns for owners, the Group is well placed to execute its strategy and achieve its goals.


	*Segmental Results*

The following table shows revenue and operating profit before other operating income and expenses in pounds sterling of the IHG continuing Hotels business by activity and the percentage contribution of each activity for the following periods: year ended December 31, 2005 and year ended December 31, 2004.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			(£ million)
Continuing revenue⁽¹⁾⁽²⁾
	Americas
		Owned and leased		123			94
		Managed		64			30
		Franchised		213			195

				400			319
	EMEA
		Owned and leased		236			231
		Managed		55			43
		Franchised		35			27

				326			301
	Asia
		Owned and leased		56			47
		Managed		25			21
		Franchised		3			3

				84			71
	Central⁽³⁾			42			40

Total				852			731

Continuing operating profit before other operating income and expenses⁽¹⁾⁽²⁾
	Americas
		Owned and leased		15			4
		Managed		20			6
		Franchised		186			167
		Regional overheads		(34	)		(27	)

				187			150
	EMEA
		Owned and leased		11			2
		Managed		31			24
		Franchised		26			21
		Regional overheads		(21	)		(23	)

				47			24
	Asia Pacific
		Owned and leased		10			9
		Managed		16			14
		Franchised		3			2
		Regional overheads		(8	)		(8	)

				21			17
	Central⁽³⁾			(65	)		(57	)

Total				190			134

Footnotes on page 29.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			(%)
Continuing revenue
	Americas
		Owned and leased		14.4			12.8
		Managed		7.5			4.1
		Franchised		25.0			26.7

				46.9			43.6
	EMEA
		Owned and leased		27.7			31.6
		Managed		6.5			5.9
		Franchised		4.1			3.7

				38.3			41.2
	Asia Pacific
		Owned and leased		6.6			6.4
		Managed		2.9			2.9
		Franchised		0.4			0.4

				9.9			9.7
	Central⁽³⁾			4.9			5.5

Total				100.0			100.0

Continuing operating profit before other operating income and expenses
	Americas
		Owned and leased		7.9			3.0
		Managed		10.5			4.5
		Franchised		97.9			124.6
		Regional overheads		(17.9	)		(20.1	)

				98.4			112.0
	EMEA
		Owned and leased		5.8			1.5
		Managed		16.3			17.9
		Franchised		13.7			15.7
		Regional overheads		(11.1	)		(17.2	)

				24.7			17.9
	Asia Pacific
		Owned and leased		5.3			6.7
		Managed		8.4			10.4
		Franchised		1.6			1.5
		Regional overheads		(4.2	)		(6.0	)

				11.1			12.6
	Central⁽³⁾			(34.2	)		(42.5	)

Total				100.0			100.0


(1)	The results of overseas operations have been translated into sterling at weighted average rates of exchange for the period. In the case of the US dollar, the translation rates are 2005: £1 = $1.83; (2004: £1 = $1.82).

(2)	Amounts are reported by origin.

(3)	Central relates to global functions. Revenue relates to Holidex fee income.

The following table shows revenue and operating profit in US dollars of the IHG continuing Hotels business by activity and the percentage contribution of each activity for the following periods: year ended December 31, 2005 and year ended December 31, 2004.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			($ million)
Continuing revenue⁽¹⁾
	Americas
		Owned and leased		224			171
		Managed		118			55
		Franchised		389			357

				731			583
	EMEA
		Owned and leased		431			421
		Managed		100			78
		Franchised		64			49

				595			548
	Asia Pacific
		Owned and leased		102			86
		Managed		45			38
		Franchised		6			5

				153			129
	Central⁽²⁾			76			73

Total				1,555			1,333

Continuing operating profit before other operating income and expenses⁽¹⁾
	Americas
		Owned and leased		28			7
		Managed		36			12
		Franchised		340			304
		Regional overheads		(62	)		(50	)

				342			273
	EMEA
		Owned and leased		20			4
		Managed		57			44
		Franchised		47			38
		Regional overheads		(38	)		(42	)

				86			44
	Asia Pacific
		Owned and leased		19			17
		Managed		29			25
		Franchised		5			3
		Regional overheads		(15	)		(15	)

				38			30
	Central⁽²⁾			(119	)		(104	)

Total				347			243

Footnotes on page 31.


			Year ended			Year ended
			December 31,			December 31,
			2005			2004

			(%)
Continuing revenue
	Americas
		Owned and leased		14.4			12.8
		Managed		7.6			4.1
		Franchised		25.0			26.8

				47.0			43.7
	EMEA
		Owned and leased		27.7			31.6
		Managed		6.4			5.8
		Franchised		4.1			3.7

				38.2			41.1
	Asia Pacific
		Owned and leased		6.6			6.4
		Managed		2.9			2.9
		Franchised		0.4			0.4

				9.9			9.7
	Central⁽²⁾			4.9			5.5

Total				100.0			100.0

Continuing operating profit before other operating income and expenses
	Americas
		Owned and leased		8.1			2.9
		Managed		10.4			4.9
		Franchised		98.0			125.1
		Regional overheads		(17.9	)		(20.5	)

				98.6			112.4
	EMEA
		Owned and leased		5.8			1.7
		Managed		16.4			18.1
		Franchised		13.5			15.6
		Regional overheads		(11.0	)		(17.3	)

				24.7			18.1
	Asia
		Owned and leased		5.5			7.0
		Managed		8.4			10.3
		Franchised		1.4			1.2
		Regional overheads		(4.3	)		(6.2	)

				11.0			12.3
	Central⁽²⁾			(34.3	)		(42.8	)

Total				100.0			100.0


(1)	Amounts are reported by origin.

(2)	Central relates to global functions. Revenue relates to Holidex fee income.


	*Global System*

The Group supports revenue delivery into its hotels through its global reservation system and global loyalty program (Priority Club Rewards) which is paid for by assessments from each hotel in the Group. The elements of the global system include:

Priority Club Rewards: The Group operates the Priority Club Rewards loyalty program. Members enjoy a variety of privileges and rewards as they stay at the Group’s hotels around the world. IHG has alliances with over 40 airlines, which enable members to collect frequent flyer miles, and with external partners such as car hire companies and credit card companies, which provide exposure and access to IHG’s system. Global system rooms sales generated from Priority Club Rewards members was $3.8 billion and represented approximately 32% of IHG global system rooms sales.

Central Reservation System Technology: The Group operates the HolidexPlus reservation system. The HolidexPlus system receives reservation requests entered on terminals located at most of its reservation centers, as well as from global distribution systems operated by a number of major corporations and travel agents. Where local hotel systems allow, the HolidexPlus system immediately confirms reservations or indicates alternative accommodation available within IHG’s network. Confirmations are transmitted electronically to the hotel for which the reservation is made.

Reservation Call Centers: The Group operates 13 reservation centers around the world which enable it to sell in local languages in many countries and offer a high quality service to customers.

Internet: The Group introduced electronic hotel reservations in 1995. The Internet continues to be an important communications, branding and distribution channel for the Group’s sales. During fiscal 2005, the internet channel continued to show strong growth, with global system rooms sales booked through the internet increasing by 23% to $1.7 billion. Approximately 14% of IHG global system rooms sales is sold via the internet through various branded websites, such as www.intercontinental.com and www.holiday-inn.com, as well as certified third parties (up from 13% in 2004). IHG made further progress in 2005 in establishing standards for working with third-party intermediaries — on-line travel distributors — who sell or re-sell IHG hotel rooms via their internet sites. Under the standards, certified distributors are required to respect IHG’s trademarks, ensure reservations are guaranteed through an automated and common confirmation process, and clearly present fees to customers. By the end of 2005, IHG had certified most major third-party distributors including Travelocity, Travelocity Business, Priceline, Orbitz, Lastminute.com, Zuji, Hotel.de and HRS. About 86% of IHG global system rooms sales booked on the web is now booked directly through the Group’s own brand sites. Arabic and Hebrew language websites have been added to the Group’s seven local language websites already available.

The Group estimates that, during 2005, global system rooms sales booked through these reservation systems (which include company reservation centers, global distribution systems and internet reservations) rose by approximately 19% to $4.8 billion, and the proportion of IHG global system rooms sales booked through IHG’s reservation channels increased from 38% to 41%.


	*Sales and Marketing*

IHG targets its sales and marketing expenditure in each region on driving revenue and brand awareness or, in the case of sales investments, targeting segments such as corporate accounts, travel agencies and meeting organizers. The majority of IHG’s sales and marketing expenditure is funded by contractual fees paid by most hotels in the system.

The strategic goals for the global system as a whole include:


•	adding further locations and improving guest satisfaction for its brands;

•	continuing the focus on enrolments in Priority Club Rewards and increasing share of the total hotel spend to establish Priority Club Rewards as the number one program in the industry;


•	making the direct channels the best available; and

•	improving pricing structure.


	*Global Brands*


	Brands Overview

The Group’s portfolio includes six established and diverse brands and one new brand (Hotel Indigo). These brands cover several market segments and in the case of InterContinental, Crowne Plaza, Holiday Inn and Express, operate internationally. Staybridge Suites operates in the Americas and was launched in the United Kingdom in 2005. Candlewood Suites operates exclusively in the United States.


	December 31, 2005

Brands	Room numbers		Hotels

InterContinental		46,262		137
Crowne Plaza		65,404		235
Holiday Inn		267,816		1,435
Express		133,554		1,590
Staybridge Suites		9,915		87
Candlewood Suites		12,683		112
Hotel Indigo		497		3
Other⁽¹⁾		1,402		7
Total		537,533		3,606


(1)	Other comprises seven non-IHG branded hotels under IHG management.


	InterContinental


	Americas		Americas		EMEA		EMEA
	total		O & L		total		O & L		Asia Pacific

Average room rate $⁽¹⁾		141.55		224.83		167.10		234.37		154.07
Room numbers⁽²⁾		15,328		1,847		21,473		3,843		9,461


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate. Owned and leased average room rate is for comparable InterContinental hotels.

(2)	As at December 31, 2005.

InterContinental is IHG’s global premium hotel brand. The brand aims to meet the tastes of discerning business and leisure travellers. InterContinental hotels are generally located in prime locations in major cities and key resorts around the world. There were 137 InterContinental hotels in 60 countries and territories which represented 8.6% of all of IHG’s hotel rooms as at December 31, 2005.

InterContinental hotels are principally owned, leased or managed by the Group. The brand is one of the largest international premium hotel brands based on room numbers and has more than 50 years of heritage. IHG’s competition includes international luxury chains (for example Four Seasons and Ritz Carlton) and upper upscale chains (for example, Marriott, Hilton, Hyatt and Westin).

During 2005, seven new InterContinental hotels were added to the portfolio. After dispositions there was a net gain of five in the total number of InterContinental hotels.


	Crowne Plaza


	Americas		Americas		EMEA		EMEA
	total		O & L		total		O & L		Asia Pacific

Average room rate $⁽¹⁾		103.16		73.41		132.08		124.20		89.22
Room numbers⁽²⁾		37,074		293		16,031		2,063		12,299


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate. Owned and leased average room rate is for comparable Crowne Plaza hotels.

(2)	As at December 31, 2005.

Crowne Plaza is IHG’s global upscale hotel brand which had grown to 235 hotels worldwide by December 31, 2005. Defined as “the Place to Meet”, the brand is targeted at the business guest, with a particular focus on executive meetings and business events. Mostly located in principal cities, the upscale Crowne Plaza hotels provide the high level of comfort, amenities, services, facilities and meeting space expected by business and leisure travellers of a full service hotel. Crowne Plaza represented 12% of IHG hotel rooms as at December 31, 2005.

Approximately 60% of the upscale Crowne Plaza hotels and resorts are franchised hotels. As at December 31, 2005, 57% of Crowne Plaza brand properties were in the Americas. The key competitors in this segment include Sheraton, Marriott, Hilton, Double-Tree, Wyndham and Radisson.

During 2005, 24 Crowne Plaza hotels were added to the portfolio while four were removed, resulting in a net increase of 20 hotels.


	Holiday Inn


	Americas		Americas		EMEA		EMEA
	total		O & L		total		O & L		Asia Pacific

Average room rate $⁽¹⁾		85.18		89.72		105.76		127.87		71.78
Room numbers⁽²⁾		195,004		1,882		50,944		3,031		21,868


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate. Owned and leased average room rate is for comparable Holiday Inn hotels.

(2)	As at December 31, 2005.

Holiday Inn is one of the world’s most recognized hotel brands, with a global reputation for full service, comfort and value. Holiday Inn International was acquired in 1988, with the remaining North American business of Holiday Inn being acquired in 1990. The Holiday Inn brand is targeted at the mid-market guest and is the Group’s largest global hotel brand based on room numbers. The Holiday Inn brand continues to expand and evolve globally to provide convenient and productive facilities for business travellers as well as memorable holiday experiences for families.

There were 1,435 Holiday Inn hotels located in more than 70 countries and territories which represented 50% of all IHG’s hotel rooms as at December 31, 2005. The brand is predominantly franchised. As at December 31, 2005, 73% of the Holiday Inn branded hotels were located in the Americas.

During 2005, the Group sold 82 hotels in several transactions, retaining 78 under the Holiday Inn brand.


	Express


	Americas		EMEA		EMEA
	total		total		O & L		Asia Pacific

Average room rate $⁽¹⁾		80.65		96.86		77.37		47.70
Room numbers⁽²⁾		115,810		16,971		1,604		773


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate. Owned and leased average room rate is for comparable Express hotels.

(2)	As at December 31, 2005.

Express is a rapidly growing, fresh and uncomplicated brand, offering limited-service comfort, convenience and good value. IHG recognized the need for a brand in this category in the early 1990s and subsequently developed Express to extend the reach of the Holiday Inn brand and enter the midscale limited service market. The brand aims to provide the room quality of midscale hotels where guests enjoy smart bedrooms, contemporary bathrooms and complimentary breakfast.

There were 1,590 Express hotels worldwide, which represented 25% of IHG’s hotel rooms as at December 31, 2005. Express is one of the largest brands in the US midscale limited service sector based on room numbers, and approximately 87% of the Express branded rooms are located in the Americas. Express hotels are almost entirely franchised. Express also has a solid and growing brand presence in the UK market where it faces competition from a variety of local market brands and independent hotels.

During 2005, 135 new Holiday Inn Express hotels were added to the portfolio, while 57 hotels were removed from the portfolio, resulting in a net gain of 78 hotels. A further 421 franchise agreements were signed, adding to the system pipeline.


	Staybridge Suites


	Americas
	total

Average room rate $⁽¹⁾		92.80
Room numbers⁽²⁾		9,915


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate.

(2)	As at December 31, 2005.

Staybridge Suites is IHG’s organically developed long-stay upscale brand that offers guests a home away from home. The rooms offer more space than the typical hotel room, offering studios and one and two bedroom suites, complete with kitchens and living rooms, work stations and high-speed internet access, along with breakfast. As at December 31, 2005, there were 87 Staybridge Suites hotels, all of which are presently located in the Americas, representing 1.8% of all IHG’s hotel rooms. The first Staybridge Suites hotel was opened in 1998, with the seventy-fifth Staybridge Suites hotel following in June 2004, demonstrating the fastest roll out of 75 properties in the extended-stay segment, and making Staybridge Suites one of the fastest growing brands in its segment. Staybridge Suites operations are divided approximately equally between franchised and managed models. The primary competitors include Residence Inn, Homewood, Summerfield and Hawthorne.

During 2005, nine hotels were added to the portfolio with one removal.

On April 6, 2005 the Group announced the launch of Staybridge Suites in the United Kingdom. The first two hotels are expected to open in late 2006.


	Candlewood Suites


	Americas
	total

Average room rate $⁽¹⁾		62.03
Room numbers⁽²⁾		12,683


(1)	For the year ended December 31, 2005; quoted at constant US$ exchange rate.

(2)	As at December 31, 2005.

The Candlewood Suites brand was acquired on December 31, 2003. Candlewood Suites is an extended- stay brand which complements Staybridge Suites’ positioning. Candlewood Suites is an established brand of carefully designed and purpose-built hotels created for stays of a week or longer with studio and one-bedroom suites featuring well-equipped kitchens, spacious work areas and an array of convenient amenities. As at December 31, 2005 there were 112 Candlewood Suites hotels. The major owner of Candlewood Suites properties is HPT and the Group manages all 76 of HPT’s Candlewood properties under a 20 year agreement. At the end of 2005, Candlewood Suites represented 2.4% of all of the Group’s rooms.


	Hotel Indigo

In April 2004, the Group launched its seventh brand, Hotel Indigo, which is a new, innovative brand, designed for the style-conscious traveller who seeks the ambience of a boutique hotel with the benefits and consistencies of a global hotel operation. Inspired by lifestyle retailing, it features inviting service, inspiring artwork, casual gourmet restaurants, airy guest rooms and 24-hour business amenities. The first Hotel Indigo opened in Atlanta, Georgia in the United States in October 2004. A further two were added to the system in Chicago and as at December 31, 2005 there were three Hotel Indigo hotels, with 497 rooms. The Group plans to open a further seven Hotel Indigo properties by the end of 2006.


	*Geographical Analysis*

Although it has worldwide hotel operations, the Group is most dependent on the Americas for operating profit, reflecting the structure of the branded global hotel market. In terms of its overall hotel level operating profit before central overheads and other operating income and expenses, the Americas represented 49%, EMEA represented 43% and the Asia Pacific region represented 8% in the year ended December 2005.

The geographical analysis, split by number of rooms and operating profit, is set out in the table below.


	Americas		EMEA		Asia Pacific

	(% of total)
Room numbers⁽¹⁾		71.9		19.6		8.5
Hotel level operating profit (before central overheads and other operating income and expenses)⁽²⁾		49%		43%		8%


(1)	As at December 31, 2005.

(2)	For the year ended December 31, 2005.

The following table shows information concerning the geographical locations and ownership of IHG’s hotels as at December 31, 2005.


						Management
						contract and joint
		Owned or leased				ventures				Franchised				Total

		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms

United States
	InterContinental		3		1,490		9		3,938		1		263		13		5,691
	Crowne Plaza		—		—		17		6,482		90		24,829		107		31,311
	Holiday Inn		3		758		46		14,228		843		157,191		892		172,177
	Express		—		—		1		252		1,355		108,084		1,356		108,336
	Staybridge		2		229		35		4,287		46		4,896		83		9,412
	Candlewood		—		—		76		9,218		36		3,465		112		12,683
	Hotel Indigo		—		—		2		305		1		192		3		497
	Other		—		—		2		295		—		—		2		295

Total			8		2,477		188		39,005		2,372		298,920		2,568		340,402

Rest of Americas
	InterContinental		1		357		12		3,779		19		5,501		32		9,637
	Crowne Plaza		1		293		2		357		23		5,113		26		5,763
	Holiday Inn		2		1,124		4		1,844		129		19,859		135		22,827
	Express		—		—		—		—		69		7,474		69		7,474
	Staybridge		—		—		2		335		2		168		4		503
	Candlewood		—		—		—		—		—		—		—		—
	Hotel Indigo		—		—		—		—		—		—		—		—
	Other		—		—		—		—		—		—		—		—

Total			4		1,774		20		6,315		242		38,115		266		46,204

Total Americas
	InterContinental		4		1,847		21		7,717		20		5,764		45		15,328
	Crowne Plaza		1		293		19		6,839		113		29,942		133		37,074
	Holiday Inn		5		1,882		50		16,072		972		177,050		1,027		195,004
	Express		—		—		1		252		1,424		115,558		1,425		115,810
	Staybridge		2		229		37		4,622		48		5,064		87		9,915
	Candlewood		—		—		76		9,218		36		3,465		112		12,683
	Hotel Indigo		—		—		2		305		1		192		3		497
	Other		—		—		2		295		—		—		2		295

Total			12		4,251		208		45,320		2,614		337,035		2,834		386,606


						Management
						contract and joint
		Owned or leased				ventures				Franchised				Total

		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms

United Kingdom
	InterContinental		1		451		—		—		—		—		1		451
	Crowne Plaza		—		—		6		1,530		7		1,656		13		3,186
	Holiday Inn		—		—		69		11,757		41		5,625		110		17,382
	Express		—		—		1		120		102		10,586		103		10,706
	Staybridge		—		—		—		—		—		—		—		—
	Candlewood		—		—		—		—		—		—		—		—
	Other		—		—		—		—		—		—		—		—

Total			1		451		76		13,407		150		17,867		227		31,725

Europe
	InterContinental		8		3,007		13		4,542		3		1,097		24		8,646
	Crowne Plaza		8		2,063		7		1,886		20		4,402		35		8,351
	Holiday Inn		12		3,031		7		1,281		159		23,023		178		27,335
	Express		11		1,604		9		1,007		36		3,338		56		5,949
	Staybridge		—		—		—		—		—		—		—		—
	Candlewood		—		—		—		—		—		—		—		—
	Other		—		—		—		—		—		—		—		—

Total			39		9,705		36		8,716		218		31,860		293		50,281

The Middle East and Africa
	InterContinental		1		385		35		10,939		4		1,052		40		12,376
	Crowne Plaza		—		—		11		3,079		5		1,415		16		4,494
	Holiday Inn		—		—		18		3,556		14		2,671		32		6,227
	Express		—		—		—		—		2		316		2		316
	Staybridge		—		—		—		—		—		—		—		—
	Candlewood		—		—		—		—		—		—		—		—
	Other		—		—		—		—		—		—		—		—

Total			1		385		64		17,574		25		5,454		90		23,413

Total EMEA
	InterContinental		10		3,843		48		15,481		7		2,149		65		21,473
	Crowne Plaza		8		2,063		24		6,495		32		7,473		64		16,031
	Holiday Inn		12		3,031		94		16,594		214		31,319		320		50,944
	Express		11		1,604		10		1,127		140		14,240		161		16,971
	Staybridge		—		—		—		—		—		—		—		—
	Candlewood		—		—		—		—		—		—		—		—
	Other		—		—		—		—		—		—		—		—

Total			41		10,541		176		39,697		393		55,181		610		105,419


						Management
						contract and joint
		Owned or leased				ventures				Franchised				Total

		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms		Hotels		Rooms

Far East and Australasia (Asia Pacific)
	InterContinental		1		495		18		6,606		8		2,360		27		9,461
	Crowne Plaza		—		—		32		10,468		6		1,831		38		12,299
	Holiday Inn		1		198		62		17,415		25		4,255		88		21,868
	Express		—		—		3		636		1		137		4		773
	Staybridge		—		—		—		—		—		—		—		—
	Candlewood		—		—		—		—		—		—		—		—
	Other		—		—		5		1,107		—		—		5		1,107

Total			2		693		120		36,232		40		8,583		162		45,508

Total
	InterContinental		15		6,185		87		29,804		35		10,273		137		46,262
	Crowne Plaza		9		2,356		75		23,802		151		39,246		235		65,404
	Holiday Inn		18		5,111		206		50,081		1,211		212,624		1,435		267,816
	Express		11		1,604		14		2,015		1,565		129,935		1,590		133,554
	Staybridge		2		229		37		4,622		48		5,064		87		9,915
	Candlewood		—		—		76		9,218		36		3,465		112		12,683
	Hotel Indigo		—		—		2		305		1		192		3		497
	Other		—		—		7		1,402		—		—		7		1,402

Total			55		15,485		504		121,249		3,047		400,799		3,606		537,533


	Americas

In the Americas, the largest proportion of rooms is operated under the franchise business model primarily in the midscale segment (Holiday Inn and Express). Similarly, in the upscale segment, Crowne Plaza is predominantly franchised, whereas the InterContinental brand currently has a bias toward ownership and management. With 2,834 hotels, the Americas represented the bulk of hotels and approximately 49% of Hotels’ operating profit before central costs and other operating income and expenses during the year ended December 31, 2005. The key profit producing region is the United States, although IHG is also represented in each of Latin America, Canada, Mexico and the Caribbean.


	EMEA

Comprising 610 hotels at the end of 2005, EMEA represented approximately 43% of Hotels’ operating profit before central costs and other operating income and expenses during the year ended December 31, 2005. The key profit producing regions are the United Kingdom and the main continental European gateway cities.


	Asia Pacific

Asia Pacific represented 8.5% of Hotels’ rooms and 8% of Hotels’ operating profit before central costs and other operating income and expenses during the year ended December 31, 2005. IHG has a strong and growing presence in Asia Pacific, comprising 162 hotels in total. Currently Greater China is expected to generate significant growth in the hotel and tourism industry over the next decade. The Group believes that the region represents a good source of growth due to the current low penetration of brands offering the opportunity for IHG’s brands to build strong positions in key markets. As at December 31, 2005 the Group had 51 hotels in Greater China and a further 38 in development.


	*Room Count and System Pipeline*

The IHG global system (that is, the number of hotels/rooms owned, leased, managed or franchised by the Group) grew significantly during 2005 ending the fiscal year at 3,606 hotels and 537,533 rooms, 66 hotels and 3,331 rooms higher than at December 31, 2004 (see Figure 4). During 2005, 254 hotels with 34,880 rooms were added to the system, while 188 hotels with 31,549 rooms were removed from the system. Of the hotels removed from the system, 139 (21,764 rooms) were in the Americas and 46 (7,896 rooms) were in EMEA. The EMEA removals included 6,338 rooms from the termination of franchise agreements in South Africa. Excluding the South African franchise removals and eight hotels (2,135 rooms) removed from the system due to hurricane damage, net system size increased by 101 hotels (11,804 rooms).

One of the key elements of the asset disposal program is the retention of management contracts for the hotels sold. Of those sold between Separation and December 31, 2005, management contracts or franchise agreements were retained for 126 hotels. Overall, the number of owned and leased rooms fell by 22,935 while the number of managed and franchised rooms in the system grew by 22,296 rooms and 3,970 rooms respectively.

At the end of 2005, the number of rooms in the pipeline (that is, contracts signed but hotels/ rooms yet to enter the system) was 108,512 — 31% up on December 31, 2004 and the highest ever for the Group (see Figure 5). This positions the Group well to achieve its stated goal of organic growth of 50,000 to 60,000 net rooms in the period June 2005 to December 2008. Whilst there is no guarantee that all of the pipeline will enter the system in that period, a number of initiatives are in place to both secure new deals and to reduce the time between a hotel signing with IHG and opening.

The growth in pipeline was fuelled by record signings during 2005; 69,970 rooms were signed which was over 60% up on the average for the last five years. This partly reflects the increased investment in development resource particularly in the Americas and Asia Pacific.

Since the year end, IHG has announced that it has signed contracts with a single owner to manage six hotels (over 4,500 rooms) in China’s Sichuan province, and it has announced further signings with a second owner to manage four hotels with over 1,400 rooms, also in China.

There are no assurances that all of the hotels in the pipeline will open or enter the system. The construction, conversion and development of hotels is dependent upon a number of factors, including meeting brand standards, obtaining the necessary permits relating to construction and operation, the cost of constructing, converting and equipping such hotels and the ability to obtain suitable financing at acceptable interest rates. The supply of capital for hotel development in the United States and major economies may not continue at previous levels and consequently the system pipeline could decrease.

FIGURE 4


		Hotels					Rooms

				Change					Change
Global hotel and room count at December 31, 2005		2005		over 2004			2005		over 2004

Analyzed by brand:
	InterContinental		137		5			46,262		1,746
	Crowne Plaza		235		20			65,404		3,777
	Holiday Inn		1,435		(49	)		267,816		(10,971	)
	Holiday Inn Express		1,590		78			133,554		7,519
	Staybridge Suites		87		8			9,915		726
	Candlewood Suites		112		3			12,683		276
	Hotel Indigo		3		2			497		357
	Other brands		7		(1	)		1,402		(99	)

Total			3,606		66			537,533		3,331

Analyzed by ownership type:
	Owned and leased		55		(111	)		15,485		(22,935	)
	Managed		504		101			121,249		22,296
	Franchised		3,047		76			400,799		3,970

Total			3,606		66			537,533		3,331

FIGURE 5


		Hotels				Rooms

				Change				Change
Global pipeline at December 31, 2005		2005		over 2004		2005		over 2004

Analyzed by brand:
	InterContinental		27		6		9,353		2,513
	Crowne Plaza		54		17		13,514		4,201
	Holiday Inn		204		48		31,035		5,630
	Holiday Inn Express		429		71		38,066		6,351
	Staybridge Suites		79		27		8,195		2,843
	Candlewood Suites		83		37		7,467		3,583
	Hotel Indigo		8		5		882		494

Total			884		211		108,512		25,615

Analyzed by ownership type:
	Owned and leased		2		—		574		(96	)
	Managed		98		14		27,805		5,387
	Franchised		784		197		80,133		20,324

Total			884		211		108,512		25,615


	*Seasonality*

Although the performance of individual hotels and geographic markets might be highly seasonal due to a variety of factors such as the tourist trade and local economic conditions, the geographical spread of IHG’s hotels in almost 100 countries and territories and the relative stability of the income stream from management and franchising activities diminish the effect of seasonality on the results of the Group.


	*Competition*

The Group’s hotels compete with a wide range of facilities offering various types of lodging options and related services to the public. The competition includes several large and moderate sized hotel chains offering upper, mid and lower priced accommodation and also includes independent hotels in each of these market segments, particularly outside of North America where the lodging industry is much more fragmented. Major hotel chains which compete with the Group include Marriott International, Inc., Starwood Hotels & Resorts Worldwide, Inc., Choice Hotels International, Inc., Best Western International, Inc., Hilton Hotels Corporation, Cendant Corporation, Four Seasons Hotels Inc. and Accor S.A.


	*Key Relationships*

The Group has a number of significant relationships with hotel owning groups, where IHG manages hotels on behalf of the owners and earns fees based on the performance of the hotels.

On January 25, 2006 IHG announced a restructured management agreement with Felcor Lodging Trust Inc., (“FelCor”), covering all of the hotels (15,790 rooms) owned by FelCor and managed by IHG. Seventeen hotels (6,301 rooms) will be retained by FelCor and managed by IHG, under revised contract terms (the contract duration has been extended to 2025 and the incentive fees on all the hotels have been rebased). HPT has purchased seven of the hotels (2,072 rooms) from FelCor for $160 million, which IHG will continue to manage under a separate management agreement. There is no increase in the guarantees to HPT (described in “Item 10. Additional Information — Material Contracts”) as a result of this transaction. Nine further hotels (2,463 rooms) can be sold by FelCor, retaining a Group brand. FelCor has the right to sell or convert a further 15 hotels (4,954 rooms); with or without an IHG brand.

Since the year end, the Group has sold its entire shareholding in FelCor for $191 million in cash.


	*Performance Indicators*

The Group considers Revenue per Available Room (“RevPAR”) to be a meaningful indicator of performance because it measures the period-over-period change in room revenues for comparable properties. RevPAR is calculated by dividing room revenue by total room nights available for a given period. RevPAR may not be comparable to similarly titled measures, such as revenues.


			Owned & leased						Managed
			comparable						comparable						Franchised

						Change vs						Change vs						Change vs
			2005			2004			2005			2004			2005			2004

Americas
	InterContinental
		Occupancy		76.3	%		4.2	% pts.		66.9	%		6.4	% pts.		60.1	%		2.2	% pts.
		Average daily rate	$	224.83			11.2	%	$	145.42			5.1	%	$	111.82			10.1	%
		RevPAR	$	171.54			17.7	%	$	95.32			16.2	%	$	67.17			14.3	%
	Crowne Plaza
		Occupancy		66.1	%		3.8	% pts.		72.2	%		2.3	% pts.		61.9	%		(0.3	)% pts.
		Average daily rate	$	73.41			1.5	%	$	117.36			9.4	%	$	98.62			8.9	%
		RevPAR	$	48.52			7.6	%	$	84.78			12.9	%	$	61.02			8.4	%
	Holiday Inn
		Occupancy		70.6	%		2.9	% pts.		68.4	%		3.1	% pts.		61.8	%		1.5	% pts.
		Average daily rate	$	89.72			9.3	%	$	83.39			6.0	%	$	85.47			6.5	%
		RevPAR	$	63.33			14.0	%	$	57.01			11.0	%	$	52.80			9.2	%


		Owned & leased						Managed
		comparable						comparable						Franchised

					Change vs						Change vs						Change vs
		2005			2004			2005			2004			2005			2004

Express
	Occupancy		—			—			75.1	%		5.4	% pts.		66.7	%		2.2	% pts.
	Average daily rate		—			—		$	119.12			8.4	%	$	80.57			6.7	%
	RevPAR		—			—		$	89.51			16.8	%	$	53.71			10.3	%
Staybridge Suites
	Occupancy		75.1	%		4.4	% pts.		75.5	%		1.3	% pts.		73.7	%		2.9	% pts.
	Average daily rate	$	78.77			1.8	%	$	94.22			7.3	%	$	91.29			5.2	%
	RevPAR	$	59.12			8.1	%	$	71.16			9.1	%	$	67.28			9.5	%
Candlewood Suites
	Occupancy		—			—			75.0	%		3.6	% pts.		69.8	%		1.2	% pts.
	Average daily rate		—			—		$	61.03			9.2	%	$	64.99			3.3	%
	RevPAR		—			—		$	45.76			14.8	%	$	45.33			5.2	%

Owned and leased, and managed statistics are for comparable hotels, and include only those hotels in the IHG system as of December 31, 2005 and owned and leased, or managed by the Group since January 1, 2004.

The comparison with 2004 is at constant US$ exchange rates.


			Owned & leased						Managed
			comparable						comparable						Franchised

						Change vs						Change vs						Change vs
			2005			2004			2005			2004			2005			2004

EMEA
	InterContinental
		Occupancy		69.5	%		5.1	% pts.		62.7	%		1.7	% pts.		68.5	%		10.3	% pts.
		Average daily rate	$	234.37			5.0	%	$	141.75			6.6	%	$	158.71			6.4	%
		RevPAR	$	162.99			13.3	%	$	88.83			9.5	%	$	108.78			25.2	%
	Crown Plaza
		Occupancy		67.5	%		3.2	% pts.		73.2	%		0.6	% pts.		63.7	%		2.3	% pts.
		Average daily rate	$	124.20			(0.1	)%	$	134.68			13.3	%	$	131.74			5.7	%
		RevPAR	$	83.80			4.9	%	$	98.63			14.3	%	$	83.94			9.6	%
	Holiday Inn
		Occupancy		62.5	%		(2.6	)% pts.		71.1	%		1.4	% pts.		64.8	%		0.5	% pts.
		Average daily rate	$	127.87			(1.3	)%	$	107.41			4.6	%	$	102.95			4.1	%
		RevPAR	$	79.94			(5.3	)%	$	76.34			6.7	%	$	66.68			4.9	%
	Express
		Occupancy		65.5	%		4.1	% pts.		60.8	%		10.1	% pts.		69.4	%		1.3	% pts.
		Average daily rate	$	77.37			(2.7	)%	$	80.67			(3.0	)%	$	99.80			3.8	%
		RevPAR	$	50.64			3.8	%	$	49.06			16.4	%	$	69.27			5.9	%

The comparison with 2004 is at constant US$ exchange rates.


			Owned & leased						Managed
			comparable						comparable						Franchised

						Change vs						Change vs						Change vs
			2005			2004			2005			2004			2005			2004

Asia Pacific
	InterContinental
		Occupancy		65.9	%		(4.3	)% pts.		71.0	%		(0.7	)% pts.		68.0	%		6.6	% pts.
		Average daily rate	$	283.79			18.9	%	$	146.66			5.8	%	$	142.36			10.4	%
		RevPAR	$	186.92			11.7	%	$	104.13			4.7	%	$	96.84			22.4	%
	Crowne Plaza
		Occupancy		—			—			77.1	%		1.8	% pts.		74.6	%		0.8	% pts.
		Average daily rate		—			—		$	91.48			8.3	%	$	99.60			0.5	%
		RevPAR		—			—		$	70.55			10.9	%	$	74.33			1.5	%
	Holiday Inn
		Occupancy		76.9	%		16.8	% pts.		75.2	%		(1.6	)% pts.		71.3	%		1.6	% pts.
		Average daily rate	$	97.79			5.5	%	$	74.14			12.7	%	$	67.35			6.0	%
		RevPAR	$	75.17			34.9	%	$	55.78			10.3	%	$	48.03			8.5	%
	Express
		Occupancy		—			—			64.9	%		7.4	% pts.		67.3	%		1.6	% pts.
		Average daily rate		—			—		$	71.20			(5.1	)%	$	59.75			(2.3	)%
		RevPAR		—			—		$	46.24			7.2	%	$	40.21			0	%
	Other
		Occupancy		—			—			65.8	%		(5.8	)% pts.		—			—
		Average daily rate		—			—		$	77.60			(1.6	)%		—			—
		RevPAR		—			—		$	51.08			(9.6	)%		—			—

The comparison with 2004 is at constant US$ exchange rates.


	*Regulation*

Both in the United Kingdom and internationally, the Group’s hotel operations are subject to regulation, including health and safety, zoning and similar land use laws as well as regulations that influence or determine wages, prices, interest rates, construction procedures and costs.

SOFT DRINKS

The Group disposed of its interest in Britvic by way of an IPO in December 2005. The Group received aggregate proceeds of approximately £371 million (including two additional dividends, one of £47 million received in November 2005, and another of £89 million, received in May 2005, before any commissions or expenses).

The Group results include the results of Soft Drinks for the period up until the IPO of Britvic on December 14, 2005.

Britvic generated operating profits before other operating income and expenses of £70 million on revenues of £671 million in the period up to December 14, 2005. In the year ended December 31, 2004, Britvic generated operating profits before other operating income and expenses of £77 million on revenues of £706 million.

TRADEMARKS

Group companies own a substantial number of service brands and product brands and the Group believes that its significant trademarks are protected in all material respects in the markets in which it currently operates.

ORGANIZATIONAL STRUCTURE


	*Principal operating subsidiary undertakings*

InterContinental Hotels Group PLC (or, where appropriate IHL) was the beneficial owner of all (unless specified) of the equity share capital, either itself or through subsidiary undertakings, of the following companies during the year. Unless stated otherwise, companies are incorporated in Great Britain, registered in England and Wales and operate principally within the United Kingdom.

Six Continents Limited (formerly Six Continents PLC)

InterContinental Hotels Group Services Company

InterContinental Hotels Group (Management Services) Limited

InterContinental Hotels Group Operating Corporation (incorporated and operates principally in the United States)

Soft Drinks

Britannia Soft Drinks Limited (47.5% Six Continents Investments Limited, 23.75% Whitbread PLC, 23.75% Allied Domecq PLC, 5% PepsiCo Holdings Limited) (note a)

Britvic Soft Drinks Limited (100% Britannia Soft Drinks Limited)

Robinsons Soft Drinks Limited (100% Britannia Soft Drinks Limited)


note a	The Group exercised dominant influence and controlled Britannia Soft Drinks Limited up to 14 December 2005 when the Group disposed of all its interests. Accordingly, the Group’s investment was treated as a subsidiary undertaking until the date of disposal.

note b	The companies listed above include all those which principally affect the amount of profit and assets of the Group.

PROPERTY, PLANTS AND EQUIPMENT

Group companies own and lease properties throughout the world. The table below analyzes the net book value of land and buildings (excluding assets classified as held for sale) at December 31, 2005. Approximately 52% of the properties by value were directly owned, with 46% held under leases having a term of 50 years or longer. These numbers have significantly changed in 2005 reflecting hotel sales and the disposal of the Group’s interest in Britvic.

Europe,

Net book value of land and buildings as

the Middle East

at December 31, 2005

and Africa

Americas

Asia Pacific

Total

(£ million)

Hotels

609

241

204

1,054

Group properties comprise hotels. Approximately 56% of the Group’s property values relate to the top five owned and leased hotels (in terms of value) of a total of 29 hotels.

In the year ended December 31, 2005 property, plant and equipment have been written down by £7 million (2004; £48 million) following an impairment review of certain hotel assets based on current market trading conditions. The fair value has been measured by reference to recent transactions for hotel assets in these markets.

ENVIRONMENT

IHG is committed to all its operating companies having a responsibility to act in a way that respects the environment in which they operate. The Group’s strong presence in the United States and European Union markets mean that it is affected by and is familiar with highly developed environmental laws and controls. IHG regularly considers environmental matters and seeks to embed good practice into its business strategies and operations. IHG was awarded membership of the FTSE4Good Index Series in 2005.

As an owner, manager and franchisor of hotels in about 100 countries, IHG has a wide range of environmental responsibilities and a unique opportunity to lead the worldwide hospitality industry in developing policies and practices.

As the Group pursues its strategic growth, it aims to minimise the effect on the environment and to make sure that the Group:


	•	is sensitive to environmental issues and considers all the potential effects of its projects and developments;

	•	introduces, promotes, implements and enforces sound environmental policies;

	•	establishes management responsibility and accountability for environmentally friendly practices; and

	•	benchmarks performance against best industry practice.

As part of this, in 2006 the Group will improve data collection and reporting to increase energy efficiency. The Group’s hotels already take steps to conserve resources, including energy and water, and to manage waste and recycling effectively. The objective is to benchmark these achievements more effectively so that clear targets for improvement can be set where necessary.

As a founding member of the International Hotels Environment Initiative (“IHEI”), IHG has worked closely with others in the industry to produce the Sustainable Hotel Siting, Design & Construction Guidelines, launched by The Prince of Wales’ International Business Leaders Forum.

The Group also operates “Conserving For Tomorrow”, an environmental program developed exclusively for IHG and used in more than 50 per cent of the Group’s properties. Guests are asked to use their linens and towels more than once to save on water, detergent, energy, labor, and replacement linen. Conserving For Tomorrow has an 80-90 per cent approval rating from hotel guests and for each average-sized, 100-room hotel it saves 6,000 gallons of water and 40 gallons of detergent each month.

Group companies incur expenditure on technical advice, services and equipment in addressing the environmental laws and regulations enacted in the countries in which they operate. In 2005, such expenditure was not material in the context of their financial results.

It is not possible to forecast the overall Group expenditure required to comply with environmental laws and regulations; this reflects the difficulty in assessing the risk of environmental accidents and the changing nature of laws and regulations. IHG expects, however, that it should be in a position to control such expenditure so that, although it may be considerable, it will be unlikely to have a material adverse effect on the Group’s financial position or results of operations.


ITEM 5.	*OPERATING AND FINANCIAL REVIEW AND PROSPECTS*

INTRODUCTION


	*Business and Overview*

Inn Express, Staybridge Suites, Candlewood Suites and Hotel Indigo. The Group also manages the hotel loyalty program, Priority Club Rewards.

With the disposal of the Group’s interests in Britvic, a manufacturer and distributor of soft drinks in the United Kingdom, by way of an initial public offering in December 2005, the Group is now focused solely on hotel franchising, management and ownership.

The Group’s revenue and earnings are derived from (i) hotel operations, which include operation of the Group’s owned hotels, management and other fees paid under management contracts, where the Group operates third-parties’ hotels, and franchise and other fees paid under franchise agreements and (ii) until December 14, 2005, the manufacture and distribution of soft drinks.

Operational Performance

The Hotels business reported growth in all regions at the revenue and operating profit lines for continuing operations. The regional increases were driven by RevPAR growth of approximately 9% across the 3,600 hotels and was mostly driven by increases in rate.

The performance of the Hotels business is evaluated primarily on a regional basis. The regional operations are split by similar product or services: franchise agreement, management contract, and owned and leased operations. All three income types are affected by occupancy and room rates achieved by hotels, our ability to manage costs and the change in the number of available rooms through acquisition, development and disposition. Results are also impacted by economic conditions and capacity. The Group’s segmental results are shown before other operating income and expenses, interest expense, interest income and income taxes.

The Group believes the period-over-period movement in RevPAR to be a meaningful indicator for the performance of the Hotels business.

CRITICAL ACCOUNTING POLICIES UNDER IFRS AND US GAAP

The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and costs and expense during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those relating to revenue recognition, bad debts, inventories, investments, property, plant and equipment, goodwill and intangible assets, income taxes, financing operations, frequent guest program liability, self-insurance claims payable, restructuring costs, retirement benefits and contingencies and litigation.

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions and conditions.

The Group’s critical accounting policies are set out below.


	*Property, Plant and Equipment and Intangible Assets*


(i)	Goodwill and other Intangible Assets

Definite lived intangible assets are capitalized and amortized over their anticipated life.

Under IFRS, goodwill arising on acquisitions prior to October 1, 1998 was eliminated against equity. From October 1, 1998 to December 31, 2003, acquired goodwill was capitalized and amortized over a period not exceeding 20 years. Since January 1, 2004, goodwill continued to be capitalized but amortization ceased as at that date.

Under US GAAP, goodwill arising on acquisitions prior to July 1, 2001 was capitalized and amortized over its estimated useful life, not exceeding 40 years. From October 1, 2002, goodwill and indefinite life intangible assets are not amortized but are reviewed annually for impairment.

Under IFRS, the Company uses a discounted cash flow model to test indefinite life intangibles for impairment on an annual basis. The discounted cash flow model requires assumptions about the timing and amount of net cash inflows, economic projections, cost of capital and terminal values. Each of these can significantly affect the value of indefinite life intangibles.

Under US GAAP, the Company tests identified intangible assets with defined useful lives by comparing the carrying value to the sum of undiscounted cash flows expected to be generated by the asset.


(ii)	Impairment

Under IFRS and US GAAP the carrying value of both tangible and finite lived intangible assets are assessed for indicators of impairment. The Company evaluates the carrying value of its long-lived assets based on its plans, at the time, for such assets and such qualitative factors as future development in the surrounding area, status of expected local competition and projected capital expenditure plans. Changes to the Company’s plans, including decisions to dispose of or change the intended use of an asset, can have a material impact on the carrying value of the asset.

Under IFRS, property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Assets that do not generate independent cash flows are combined into cash-generating units. If carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. Recoverable amount is the greater of fair value less cost to sell and value in use. Value in use is assessed based on estimated future cash flows discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The outcome of such an assessment is subjective, and the result sensitive to the assumed future cashflows to be generated by the assets and discount rates applied in calculating the value in use, both of which will be dependent on the type of asset and its location. Any impairment arising is charged to the income statement. Under US GAAP, the assessment of an asset’s carrying value is by reference in the first instance to undiscounted cashflows. To the extent that undiscounted cashflows do not support carrying value, the fair value of assets must be calculated and the difference to the current carrying value charged to the income statement.

During 2005, under IFRS the Company recorded an impairment of its property, plant and equipment of £7 million, all of which relates to Hotels and represents 0.5% of the total carrying value of property, plant and equipment. For the purposes of US GAAP, the Company recorded an impairment of its property, plant and equipment of £24 million.


	*Sale of Real Estate*

Under IFRS, the Company recognises the sales proceeds and related profit or loss on disposal on completion of the sales process. The Group considers the following questions in determining whether revenue and profit should be recorded:


	•	does the Company have a continuing managerial involvement of the degree associated with asset ownership;

	•	has the Company transferred the significant risks and rewards associated with asset ownership;

	•	can the Company reliably measure the proceeds; and

	•	will the Company actually receive the proceeds.

For US GAAP, the Company accounts for sales of real estate in accordance with FAS 66 “Accounting for Sales of Real Estate”. If there is significant continuing involvement with the property, any gain on sale is

deferred and is recognized over the life of the long-term management contract retained on the property. The deferral of gains on such sales totaled £5 million in 2005 and £nil million in 2004.


	*Income Taxes*

The Company provides for deferred tax in accordance with IAS 12 “Income Taxes” in respect of all temporary differences between the tax base and carrying value of assets and liabilities. Those temporary differences recognized include accelerated capital allowances, unrelieved tax losses, unremitted profits from overseas where the Company does not control remittance, gains rolled over into replacement assets, gains on previously revalued properties and other short-term temporary differences. Under US GAAP, deferred tax is computed, in accordance with FAS No. 109 “Accounting for Income Taxes”, on all temporary differences between the tax bases and book values of assets and liabilities which will result in taxable or tax deductible amounts arising in future years. Deferred tax assets under IFRS are recognized to the extent that it is regarded as probable that the deductible temporary differences can be utilized. Under US GAAP, deferred tax assets are recognized in full and a valuation allowance is made to the extent that it is not more likely than not that they will be realized. Under US GAAP, the Company estimates deferred tax assets and liabilities based on current tax laws and rates, and in certain cases, business plans. Changes in these estimates may affect the amount of deferred tax liabilities or the valuation of deferred tax assets.

Under both IFRS and US GAAP, accruals for tax contingencies require judgments on the expected outcome of tax exposures, whereas the actual results may vary resulting in releases of contingencies or cash tax settlements.


	*Loyalty program*

Priority Club Rewards enables members to earn points, funded through hotel assessments, during each stay at an InterContinental Hotels Group hotel and redeem the points at a later date for free accommodation or other benefits. The future redemption liability is included in trade and other payables and provisions and other payables in the consolidated balance sheets in the Consolidated Financial Statements and is estimated using actuarial methods based on statistical formulas that project timing of future point redemption based on historical levels to give eventual redemption rates and points values.


	*Legal Contingencies*

The Company is subject to various legal proceedings and claims, the outcomes of which are subject to significant uncertainty. Under both IFRS and US GAAP accruals are recorded for loss contingencies when a loss is probable and the amount can be reasonably estimated.

OPERATING RESULTS


	*Accounting Principles*

The following discussion and analysis is based on the Consolidated Financial Statements of the Group, which are prepared in accordance with IFRS. The principal differences between IFRS and US GAAP as they relate to the Group are discussed in Note 32 of Notes to the Financial Statements.

The Group was required to produce its first set of audited financial statements in line with IFRS for the year ending December 31, 2005.

The Group has taken the following exemptions available under IFRS 1 “First-time Adoption of International Financial Reporting Standards”:


	(a)	Not to restate the comparative information disclosed in the 2005 financial statements in accordance with IAS 32 “Financial Instruments: Disclosure and Presentation” and IAS 39 “Financial Instruments: Recognition and Measurement”.

	(b)	Not to restate business combinations before January 1, 2004.


	(c)	To recognize all actuarial gains and losses on pensions and other post-employment benefits directly in equity at January 1, 2004.

	(d)	To retain UK GAAP carrying values of property, plant and equipment, including revaluations, as deemed cost at transition.

	(e)	Not to recognize separately cumulative foreign exchange movements up to January 1, 2004.

	(f)	To apply IFRS 2 “Share-based Payments” to grants of equity instruments after November 7, 2002 that had not vested at January 1, 2005.

The disclosures required by IFRS 1 are given in Note 30 of Notes to the Financial Statements.

For the year ended December 31, 2005 the results include special items totaling a net credit of £297 million (2004 £142 million — see “year ended December 31, 2005 compared to year ended December 31, 2004 — Special Items”. For comparability of the periods presented, some performance indicators in this Operating and Financial Review and Prospects discussion have been calculated after eliminating these special items. Such indicators are prefixed with “adjusted”. A reconciliation to the amounts under IFRS including such special items is included in Note 9 of Notes to the Financial Statements.


	*Year ended December 2005 compared with year ended December 2004*


	Group


		Year ended			Year ended
		December 31,			December 31,
		2005			2004

		(£ million)
GROUP RESULTS
Revenue:
Continuing operations
	Hotels		852			731
Discontinued operations
	Hotels		387			767
	Soft Drinks		671			706

Total revenue			1,910			2,204

Operating profit before other operating income and expenses:
Continuing operations
	Hotels		190			134
Discontinued operations
	Hotels		79			135
	Soft Drinks		70			77

Total operating profit before other operating income and expenses			339			346
Other operating income and expenses:
Continuing operations
	Impairment of property, plant and equipment		(7	)		(48	)
	Restructuring costs		(13	)		(11	)
	Property damage		(9	)		—
	Employee benefits curtailment gain		7			—
	Reversal of previously recorded provisions		—			20
	Provision for investment in associates		—			(16	)
	Provision for investment in other financial assets		—			(2	)
	Write back of provision for investment in other financial assets		—			8

Operating profit			317			297

IHG revenue from continuing operations for the year ended December 31, 2005 was £852 million (2004 £731 million). Operating profit before other operating income and expenses from continuing operations for the year ended December 31, 2005 was £190 million (2004 £134 million).

Gain on disposals for the year ended December 31, 2005 after tax totaled a net profit of £311 million (2004 £19 million). Details of the gain on disposals are outlined under the heading “Gain on Disposal of Assets” on page 52.

Net movement in cash and cash equivalents for the year ended December 31, 2005 was an inflow of £259 million (2004 outflow of £338 million) mainly driven by the receipt of £2,046 million from disposals. This was offset by a £996 million payment to shareholders as a result of the capital reorganisation on June 27, 2005. Cash inflow from operations for the year ended December 31, 2005 was £423 million, compared with £515 million for 2004.

Basic earnings per share for the year ended December 31, 2005 was 95.2 pence (2004 53.9 pence). Adjusted earnings per share from continuing operations, after eliminating the effect of special items, was 24.9 pence for the year ended December 31, 2005 (2004 17.3 pence). Dividends for the year ended December 31, 2005 were 14.6 pence per share. A reconciliation of actual to adjusted earnings per share is set out in Note 9 of Notes to the Financial Statements.

Special Items

Special items totaled a net credit of £297 million in 2005 compared with a net credit of £142 million in 2004. The special items included:


	•	£13 million charge (2004 £11 million charge) relating to the delivery of the further restructuring of the Hotels business;

	•	£9 million charge (2004 £nil million) of property damage relating from fire and natural disasters;

	•	£7 million charge (2004 £48 million charge) for impairment of property, plant and equipment;

	•	£7 million credit (2004 £nil million)for employee benefits curtailment as a result of the UK hotels disposal;

	•	£nil million (2004 £20 million credit) relating to the reversal of previously recorded provisions;

	•	£nil million (2004 £16 million charge) relating to an impairment in the value of associate investments;

	•	£nil million (2004 £2 million charge) relating to impairment in the value in investments in other financial assets;

	•	£nil million (2004 £8 million credit) relating to write back in provisions in investments in other financial assets;

	•	£nil million (2004 £11 million expense) relating to one time net financial expenses;

	•	£8 million credit (2004 £183 million credit) representing the release of provisions relating to tax matters which have been settled or in respect of which the relevant statutory limitation period has expired, principally relating to acquisitions (including provisions relating to pre-acquisition periods) and disposals, intra-group financing and, in 2004, the recognition of a deferred tax asset of £83 million in respect of capital losses; and

	•	£311 million gain (2004 £19 million gain) net of tax on disposal of assets.

Special items are disclosed separately because of their size and incidence and are excluded from the calculation of adjusted earnings per share to give a more meaningful comparison of the Company’s performance.

Net Financing Costs

Net financing costs totaled £33 million in 2005 the same as in 2004. In 2005, £9 million related to Soft Drinks and is classified as discontinued operations. The prior year net financing expense included a net £11 million charge that is treated as a special item and is excluded from the calculation of adjusted earnings per share.

Taxation

The effective rate of tax on profit before tax, excluding the impact of special items, was 28.6%. By also excluding the impact of prior year items, which are included wholly within continuing operations, the equivalent effective tax rate would be 37.8%. This rate is higher than the UK statutory rate of 30% due mainly to overseas profits being taxed at rates higher than the UK statutory rate. The equivalent effective rates for 2004, restated under IFRS, were 17.3% and 38.6% respectively.

Taxation special items totaled an £8 million credit (2004 £183 million credit). In 2005, this represented the release of provisions which were special by reason of their size or incidence, relating to tax matters which were settled during the year, or in respect of which the statutory limitation period had expired. In 2004, taxation special items, in addition to such provision releases, included £83 million for the recognition of a deferred tax asset in respect of capital losses.

Net tax paid in 2005 was £91 million (2004 £35 million) including £11 million in respect of disposals.

Gain on Disposal of Assets

The gain on disposal of assets, net of related tax, totaled £311 million in 2005 and mainly comprised a net gain on disposal of Soft Drinks of £284 million and a net gain on hotel asset disposals of £27 million.

Earnings

Basic earnings per share for 2005 were 95.2 pence, compared with 53.9 pence in 2004. Adjusted earnings per share, removing the non-comparable special items, were 38.2 pence, against 33.9 pence in 2004. Adjusted earnings per share for continuing operations were 24.9 pence, 44% up on last year.

Dividends

The Board has proposed a final dividend per share of 10.7 pence; with the interim dividend of 4.6 pence the normal dividend for 2005 totaled 15.3 pence.

Capital Expenditure and Cash Flow

The net movement in cash and cash equivalents for the year ended December 31, 2005 was an inflow of £259 million. This included a net cash inflow from operations of £423 million, and a net cash inflow from investing activities of £1,863 million.

Proceeds from the disposal of operations and other financial assets totaled £2,046 million and included proceeds from the sale of Soft Drinks of £220 million and from the sale of hotels of £1,826 million.

Capital expenditure for Hotels totaled £136 million compared with £187 million in 2004, as the Group continued its asset disposal program. Capital expenditure in 2005 for Hotels included refurbishment of the InterContinental London and Holiday Inn Munich City Centre and a rolling rooms refurbishment program at the InterContinental Hong Kong.


	*Highlights for the year ended December 31, 2005*

The following is a discussion of the year ended December 31, 2005 compared with the year ended December 2004.


	*Continuing Hotels Results*


		Year ended			Year ended
		December 31,			December 31,
		2005			2004			Change

		(£ million)						%
Revenue:
	Americas		400			319			25.4
	EMEA		326			301			8.3
	Asia Pacific		84			71			18.3
	Central		42			40			5.0

			852			731			16.6

Operating profit before other operating income and expenses:
	Americas		187			150			24.7
	EMEA		47			24			95.8
	Asia Pacific		21			17			23.5
	Central		(65	)		(57	)		14.0

			190			134			41.8

Revenue. Continuing Hotels revenue increased £121 million (16.6%) from £731 million for the year ended December 31, 2004, to £852 million for the year ended December 31, 2005.

Operating profit. Continuing Hotels operating profit before other operating income and expenses for the year ended December 31, 2005 was £190 million, up 41.8% (year ended December 31, 2004 £134 million).


	*Americas*


	Continuing Americas Results


		Year ended		Year ended
		December 31,		December 31,
		2005		2004		Change

		($ million)				%
Revenue:
	Owned and leased		224		171		31.0
	Managed		118		55		114.5
	Franchised		389		357		9.0

			731		583		25.4


		Year ended			Year ended
		December 31,			December 31,
		2005			2004			Change

		($ million)						%
Operating profit before other operating income and expenses:
	Owned and leased		28			7			300.0
	Managed		36			12			200.0
	Franchised		340			304			11.8

			404			323			25.1
Regional overheads			(62	)		(50	)		24.0

Total $ million			342			273			25.3

Sterling equivalent £ million⁽ⁱ⁾			187			150			24.7


(i)	The results have been translated into pounds sterling at weighted average rates of exchange for the year. The translation rates are fiscal 2005: £1 = $1.83 (2004: £1 = $1.82).

Total Americas continuing operating profit was $342 million, a 25.3% increase on continuing operating profit for the year ended December 31, 2004 of $273 million.

Franchised revenue increased by 9.0% to $389 million as a result of strong trading and increased room count and signings. RevPARs across the brands showed strong growth, with Holiday Inn RevPAR 9.2% up on 2004, Holiday Inn Express 10.3% up and Crowne Plaza 8.4% up. The franchised estate increased by 3,878 rooms in the year with the most significant increase being in the Holiday Inn Express brand. Franchised revenue also benefited from the number of signings in 2005 with a record 47,245 room signings (50% up on 2004) leading to higher sales revenues than in 2004. Franchised operating profit rose by $36 million to $340 million.

Continuing owned and leased revenue increased by over 30% driven by strong trading in the comparable estate (those hotels fully trading as owned and leased in both financial years). Comparable RevPARs were 17.7% up for InterContinental and 14.0% up for Holiday Inn with average daily rate growth fuelling the increased RevPAR. The InterContinental Buckhead, Atlanta, also contributed its first full year of trading after opening in November 2004. These revenue increases, together with improved operating efficiency in the hotels, led to continuing owned and leased operating profit increasing significantly over 2004, from $7 million to $28 million.

Managed revenue increased from $55 million in 2004 to $118 million as a result of strong trading in the comparable estate boosted by the 13 hotels sold to HPT and the two hotels acquired by SHC. Managed revenue also includes $70 million (2004 $27 million) from properties (including the InterContinental San Juan sold in the year) that are structured, for legal reasons, as operating leases but with the same economic characteristics as a management contract. Overall, managed RevPARs grew by 16.2% for InterContinental, 12.9% for Crowne Plaza, 11.0% for Holiday Inn, 9.1% for Staybridge Suites and 14.8% for Candlewood Suites. Managed operating profit increased from $12 million to $36 million including $9 million (2004 $3 million) from the managed properties held as operating leases, including a contribution from the 15 hotels moving from ownership to management.

Americas regional overheads increased to $62 million from $50 million in 2004, reflecting investment in additional development resources and information technology.

Americas hotel and room count grew by a net 51 hotels (279 rooms) to 2,834 hotels (386,606 rooms). 190 hotels (22,043 rooms) entered the system and 139 hotels (21,764 rooms) left the system. Of the removals, 83 hotels (16,188 rooms) were Holiday Inn and 53 hotels (4,561 rooms) were Holiday Inn Express. Of the removals nearly 60% were enforced by IHG as a result of quality or financial concerns.

The Americas pipeline grew to record levels, 742 hotels (76,865 rooms), with 447 hotels (49,765 rooms) signing contracts during the year to enter the system. Of these signings, 19,355 rooms were Holiday Inn Express.


	*Europe, Middle East and Africa*


	Continuing EMEA Results


		Year ended			Year ended
		December 31,			December 31,
		2005			2004			Change

		(£ million)						%
Revenue:
	Owned and leased		236			231			2.2
	Managed		55			43			27.9
	Franchised		35			27			29.6

			326			301			8.3

Operating profit before other operating income and expenses:
	Owned and leased		11			2			450.0
	Managed		31			24			29.2
	Franchised		26			21			23.8

			68			47			44.7
Regional overheads			(21	)		(23	)		(8.7	)

Total £ million			47			24			95.8

Dollar equivalent $ million⁽ⁱ⁾			86			44			95.5


(i)	The results have been translated into US dollars at weighted average rates of exchange for the year. The translation rates are fiscal 2005: $1 = £0.55 (2004: $1 = £0.55).

The EMEA operating model changed in 2005 as a result of the disposal of 73 hotels in the UK to LRG and a number of smaller transactions. As a result, the number of owned and leased hotels reduced by 85 whilst the number of managed hotels increased by 77, including 73 in connection with the LRG transaction.

Revenue from continuing operations increased by 8.3% to £326 million and continuing operating profit before other operating income and expenses increased by 95.8% to £47 million.

Owned and leased revenue from continuing operations increased by 2.2% from £231 million in 2004 to £236 million. Performance across the region was mixed with variable trading conditions in parts of Continental Europe. The refurbishment of the InterContinental London impacted the overall result with the hotel being disrupted for most of the year and closed in the final quarter of the year. Owned and leased operating profit from continuing operations increased by £9 million to £11 million.

Managed revenue increased by £12 million to £55 million. The 2004 result benefited from the receipt in 2004 of approximately £4 million liquidated damages from the early termination of the InterContinental Barcelona management contract. The 2005 result was affected by a loss of earnings following the bombings in Beirut, but underlying trading was strong, particularly in the Middle East where managed RevPAR increased by 11.9%. Management fees are also included from LRG for the hotels sold in May 2005 (including incentive fees); Holiday Inn UK RevPAR overall was up to 4.6%.

Franchised revenue for EMEA increased by £8 million to £35 million. Holiday Inn franchised RevPAR increased by 4.9% and Holiday Inn Express RevPAR increased by 5.9%. Franchised operating profit increased

by £5 million to £26 million and included £7 million liquidated damages for the termination of franchise agreements in South Africa.

EMEA hotel and room count at December 31, 2005 was broadly level with December 31, 2004 at 610 hotels (105,419 rooms) despite the termination of the master franchise agreement in South Africa (6,338 rooms). Two significant deals added hotels to the system during the year, five Holiday Inn hotels (602 rooms) in the UK from a franchise agreement with Stardon, a joint venture company formed between Starwood Capital Europe and Chardon Hotels, and 13 hotels (2,233 rooms) in the UK from a franchise agreement with Queens Moat Houses Limited.

The EMEA pipeline at December 31, 2005 was 86 hotels (14,278 rooms).


	*Asia Pacific*


	Continuing Asia Pacific Results


		Year ended			Year ended
		December 31,			December 31,
		2005			2004			Change

		($ million)						%
Revenue:
	Owned and leased		102			86			18.6
	Managed		45			38			18.4
	Franchised		6			5			20.0

			153			129			18.6

Operating profit before other operating income and expenses:
	Owned and leased		19			17			11.8
	Managed		29			25			16.0
	Franchised		5			3			66.7

			53			45			17.8
Regional overheads			(15	)		(15	)		—

Total $ million			38			30			26.7

Sterling equivalent £ million⁽ⁱ⁾			21			16			31.2


(i)	The results have been translated into pounds sterling at weighted average rates of exchange for the year. The translation rates are fiscal 2004: £1 = $1.83 (2004: £1 = $1.82).

Asia Pacific revenue from continuing operations increased by 18.6% to $153 million and operating profit before other operating income and expenses increased by 26.7% to $38 million.

Continuing owned and leased operating profit grew from $17 million in 2004 to $19 million mainly reflecting strong trading in the InterContinental Hong Kong which achieved RevPAR growth of 11.7% over 2004, driven by average daily rate growth.

Asia Pacific managed operating profit grew strongly from $25 million to $29 million, reflecting both the impact of improved RevPAR and an increase in room count over 2004. Greater China managed RevPAR increased by 13.6% and Australia, New Zealand and South Pacific managed RevPAR increased by 6.1%.

Asia Pacific franchised operating profit increased by $2 million to $5 million.

Regional overheads were level at $15 million despite increased resources for the planned expansion in Greater China. During 2005, a further nine hotels (2,839 rooms) opened in Greater China and 20 hotels (7,308 rooms) signed contracts and entered the pipeline.

Overall, the number of hotels in Asia Pacific increased by 13 hotels (3,383 rooms). During the year, ten owned and leased hotels (2,315 rooms) in Australia, New Zealand and Fiji were sold but retained with management contracts.

Asia Pacific pipeline grew by 14 managed hotels (4,564 rooms) primarily in the InterContinental and Crowne Plaza brands. In addition, on February 15, 2006, IHG announced that it had signed contracts with a single owner to manage six hotels (over 4,500 rooms) in China’s Sichuan province, and on February 24, 2006 announced that it had signed contracts with an owner to manage four hotels, with over 1,400 rooms, also in China.


	*Central*


	Central


	Year ended			Year ended
	December 31,			December 31,
	2005			2004			Change

	(£ million)						%
Revenue		42			40			5.0
Gross central costs		(107	)		(97	)		10.3

Net central costs £ million		(65	)		(57	)		14.0

Dollar equivalent $ million⁽ⁱ⁾		(118	)		(102	)		15.7


(i)	The results have been translated into US dollars at weighted average rates of exchange for the year. The translation rates are fiscal 2005: $1 = £0.55 (2004: $1 = £0.55).

Net central costs increased by £8 million reflecting increased governance costs, further investment to support development and the accounting treatment of share scheme costs. Under IFRS, the charges for share option schemes established after November 2002 are accounted for in the income statement. As share scheme awards are generally made annually and the accounting cost is spread over three years, 2005 is the first year that a full annual cost is taken into account.


	*Discontinued Operations*

For the year ended December 31, 2005 operating profit from hotels classified as discontinued was £79 million (2004 £135 million) and was £70 million (2004 £77 million) for the Soft Drinks business.

The net gain on disposal of assets for hotels was £25 million (2004 £19 million) and for Soft Drinks was £286 million (2004 £nil million).

LIQUIDITY AND CAPITAL RESOURCES


	*Sources of Liquidity*

In 2004 the Group refinanced its syndicated bank facility which gave the Group greater financial flexibility at a lower cost. The current size of the facility is £1.1 billion. As a result of the cost effective funding obtained from the bank market the Group repurchased its € 600 million 4.75% 2010 Notes in December 2004 and January 2005.

At December 31, 2005 gross debt (including currency swaps liabilities of £367 million) amounted to £779 million comprising £488 million of euro denominated borrowings, £220 million of US dollar denominated borrowings and £71 million of Hong Kong dollar denominated borrowings.

At December 31, 2005 committed bank facilities amounted to £1,163 million of which £751 million were unutilized. Uncommitted facilities totaled £14 million. In the Group’s opinion, the working capital is sufficient for the Group’s present requirements.

The Group also held short term deposits and investments at December 31, 2005 amounting to £686 million (including currency swap assets of £362 million). Credit risk on treasury transactions is minimised by operating a policy on investment of surplus funds that generally restricts counterparties to those with an A credit rating or better or those providing adequate security. Limits are also set on the amounts invested with individual counterparties. Most of the Group’s surplus funds are held in the United Kingdom or United States and there are no material funds where repatriation is restricted as a result of foreign exchange regulations.

The Group is in compliance with its financial covenants in its loan documentation none of which represent a material restriction on funding or investment policy in the foreseeable future.

Details of exchange and interest rate risk and financial instruments are disclosed in “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.


	*Cash From Operating Activities*

Cash flow from operating activities is the principal source of cash used to fund the ongoing operating expenses, interest payments, maintenance capital expenditure and dividend payments of the Group. The Group believes that the requirements of its existing business and future investment can be met from cash generated internally, disposition of assets and businesses and external finance expected to be available to it.


	*Cash Used for Investing Activities*

IHG’s second £250 million on-market share repurchase program was announced in September 2004 and commenced in December 2004. In 2005, 30.6 million shares were repurchased at an average price of 672 pence per share making the total purchased under the second program £211 million. On September 8, 2005 IHG announced a further £250 million share repurchase program to commence on completion of the second program. The precise timing of share purchases will be dependent upon, amongst other things, market conditions. Purchases are under the existing authority from shareholders which will be renewed at the Annual General Meeting 2006. Any shares repurchased under this program will be canceled.

On July 8, 2005, IHG returned a further £996 million capital to shareholders following the capital reorganization of the Group completed in June 2005. Under the reorganization, shareholders received 11 new ordinary shares and £24.75 cash in exchange for every 15 existing ordinary shares held on June 24, 2005.

On March 2, 2006, IHG announced that a £500 million special dividend will be paid to shareholders in the second quarter of 2006.

Since April 2003, IHG has announced the return of £2.75 billion of funds to shareholders by way of special dividends, share repurchase programs and capital returned.

As of December 31, 2005, the Group had committed contractual capital expenditure of £76 million. Contracts for expenditure on fixed assets are not authorized by the directors on an annual basis, as divisional capital expenditure is controlled by cash flow budgets. Authorization of major projects occurs shortly before contracts are placed.

The Group intends to invest approximately £180 million in capital expenditure in 2006. This level of capital expenditure is reviewed regularly during the year and may be increased or decreased in the light of prevailing economic and market conditions and other financial considerations.


	*Contractual Obligations*

The Company had the following contractual obligations outstanding as of December 31, 2005:


	Total amounts		Less than						After
	committed		1 year		1-3 years		3-5 years		5 years

	(£ million)
Long-term debt		412		2		33		377		—
Operating lease obligations		274		36		56		33		149
Other long-term obligations⁽ⁱ⁾		82		6		12		8		56
Capital contracts placed		76		76		—		—		—

		844		120		101		418		205


(i)	Other long-term obligations includes credit balances on currency swaps, interest rate swaps, forward contracts and pension obligations.

The Company may provide performance guarantees to third-party owners to secure management contracts. The maximum exposure under such guarantees is £134 million. It is the view of the directors that, other than to the extent that liabilities have been provided for in the Consolidated Financial Statements, such guarantees are not expected to result in financial loss to the Group.

As of December 31, 2005, the Group had outstanding letters of credit of £18 million mainly relating to self-insurance programs.

The Group may guarantee loans made to facilitate third-party ownership of hotels in which the Group has an equity interest and also a management contract. As of December 31, 2005, the Group was a guarantor of loans which could amount to a maximum of £15 million.

The Group has given warranties in respect of the disposal of certain of its former subsidiaries. The Company believes that, other than to the extent that liabilities have been provided for in the Consolidated Financial Statements, such warranties are not expected to result in financial loss to the Group.


	*Pension Plan Commitments*

IHG operates two main schemes; the InterContinental Hotels UK Pension Plan, and the US based InterContinental Hotels Pension Plan.

The InterContinental Hotels UK Pension Plan was established with effect from April 1, 2003. On an IAS 19 “Employee Benefits” basis, at December 31, 2005 the Plan had a deficit of £24 million. The defined benefits section of this Plan is generally closed to new members. In 2006, the Group expects to make projected regular contributions to the UK principal plan of £4 million.

The US based InterContinental Hotels Pension Plan is closed to new members and pensionable service no longer accrues for current employee members. On an IAS 19 basis, at December 31, 2005 the Plan had a deficit of $71 million.

The InterContinental Hotels Group will be exposed to the funding risks in relation to the defined benefit sections of the InterContinental Hotels UK Pension Plan and the US based InterContinental Hotels Pension Plan, as explained in “Item 3. Key Information — Risk Factors”.

Details of exchange and interest rate risk and financial instruments are disclosed in “Item 11. Quantitative and Qualitative Disclosures about Market Risk”.


ITEM 6.	*DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES*

DIRECTORS AND SENIOR MANAGEMENT

Overall strategic direction of the Group is provided by the board of directors, comprising executive and non-executive directors, and by members of the executive committee.

The directors and officers of InterContinental Hotels Group PLC as at March 17, 2006 are:


		Initially		Date of next
		appointed to		reappointment
Name	Title	the board		by shareholders*

Andrew Cosslett	Director and Chief Executive		2005		2007
Richard Hartman	Director and Managing Director, EMEA		2003		2007
David Kappler⁽¹⁾	Director and Senior Independent Director		2004		2007
Ralph Kugler⁽¹⁾	Director		2003		2007
Jennifer Laing⁽¹⁾	Director		2005		2006
Robert C. Larson⁽¹⁾	Director		2003		2006
Jonathan Linen⁽¹⁾	Director		2005		2006
Stevan Porter	Director and President, The Americas		2003		2006
Sir David Prosser⁽¹⁾	Director		2003		2007
Richard Solomons	Director and Finance Director		2003		2007
Sir Howard Stringer⁽¹⁾	Director		2003		2007
David Webster	Chairman		2003		2007


(1)	Independent non-executive director.

Robert C. Larson, being over the age of 70, is required to retire and stand for re-election at each Annual General Meeting, if he wishes to continue to serve as a director. Sir David Prosser, Sir Howard Stringer and David Webster will be required, under the Company’s articles of association, to stand for re-election at the 2007 Annual General Meeting. Any further reappointments at the 2007 meeting would be on a voluntary basis.


	*Officers*


Name	Title	Initially appointed

Tom Conophy	Executive Vice President and Chief Information Officer		2006
Peter Gowers	Executive Vice President and Chief Marketing Officer		2003
A. Patrick Imbardelli	President, Asia Pacific		2003
Tracy Robbins	Executive Vice President, Human Resources		2005
Richard Winter	Executive Vice President, Corporate Services, Group Company Secretary and General Counsel		2003


	*Former Directors and Officers*

Jim Larson served as an officer and Executive Vice President, Human Resources from April 2003 until December 2005.


	*Directors and Officers*

Tom Conophy

Has over 25 years’ experience in the IT industry, including management and development of new technology solutions within the travel and hospitality business. He joined the Group in February 2006 from

Starwood Hotels & Resorts International where he held the position of Executive Vice President and Chief Technology Officer. Responsible for IT systems and information management throughout the Group. Aged 45.

Andrew Cosslett

Appointed Chief Executive in February 2005. He joined the Group from Cadbury Schweppes plc where he was most recently President, Europe, Middle East & Africa. During his career at Cadbury Schweppes he held a variety of senior regional management and marketing roles in the UK and Asia Pacific. He also has over 11 years’ experience in brand marketing with Unilever. He is non-executive Chairman of Duchy Originals Foods Limited. Aged 50.

Peter Gowers

Has previous international experience in management consultancy based in London and Singapore. He joined the Group in 1999 and was appointed Executive Vice President, Global Brand Services in January 2003. Appointed Chief Marketing Officer in 2005, now has responsibility for worldwide brand management, reservations, e-commerce, global sales, relationship marketing and loyalty programs. Aged 33.

Richard Hartman

Has over 39 years’ experience in the hotel industry including 30 years with Sheraton. He joined the Group in 1999 as Managing Director, Asia Pacific. Subsequently, as Managing Director, Europe, Middle East & Africa, he was appointed an executive director in April 2003. Responsible for the business of all the Hotel brands and properties in the EMEA region. Aged 60.

A. Patrick Imbardelli

Has over 24 years’ experience in the hotel industry including 12 years with Southern Pacific Hotels Corporation. He joined the Group in 2000 and was appointed Managing Director, Asia Pacific in January 2003. Responsible for the business of all the Hotel brands and properties in The Asia Pacific Region. Aged 45.

David Kappler

Appointed a director and Senior Independent Director in June 2004. He is non-executive Chairman of Premier Foods plc and a non-executive director of Shire plc and HMV Group plc. A qualified accountant and formerly Chief Financial Officer of Cadbury Schweppes plc until April 2004, he also served as a non-executive director of Camelot Group plc. Chairman of the Audit Committee. Aged 58.

Ralph Kugler

Appointed a director in April 2003, he is President, Unilever Home and Personal Care, and joined the Boards of Unilever plc and Unilever NV in May 2005. He has held a variety of senior positions globally for Unilever and has experience of regional management in Asia, Latin America and Europe (including as President of Unilever Latin America and, more recently, President of Unilever Europe, Home and Personal Care) with over 25 years’ experience of general management and brand marketing. Aged 50.

Jennifer Laing

Appointed a director in August 2005, she is Associate Dean, External Relations at the London Business School. A fellow of the Marketing Society and of the Institute of Practitioners in Advertising, she has over 30 years’ experience in advertising including 16 years with Saatchi & Saatchi, to whom she sold her own agency. She also serves as a non-executive Director of Hudson Highland Group Inc., a US human resources company. Aged 58.

Robert C Larson

Appointed a director in April 2003, he is a Managing Director of Lazard Alternative Investments LLC and Chairman of Lazard Frères Real Estate Investors, LLC. He is also Chairman of Larson Realty Group and non-executive Chairman of United Dominion Realty Trust Inc. He served as a non-executive director of Six Continents PLC (formerly Bass PLC) from 1996 until April 2003. Aged 71.

Jonathan Linen

Appointed a director in December 2005, he recently retired as Vice Chairman of the American Express Company, having held a range of senior positions including in New Product Development, Marketing and Sales and Travel Services throughout his career of over 35 years with American Express. A Management Development graduate of Harvard Business School, he also serves on the Board and Executive Committees of a number of US Companies and Councils. Aged 62.

Stevan Porter

Previously spent 13 years with Hilton Corporation in a variety of senior management positions. He joined the Group in 2001 as Chief Operating Officer, The Americas. Subsequently, as President, The Americas, he was appointed an executive director in April 2003. Responsible for the business of all the Hotel brands and properties in The Americas region. Additionally, he has the role of Global Leader, Franchise Strategy, with responsibility for the development and deployment of best practice in franchising globally. Aged 51.

Sir David Prosser

Qualified actuary with over 40 years’ experience in financial services. Appointed a director in April 2003, he was, until December 31, 2005, Group Chief Executive of Legal & General Group Plc. He is a director of the Royal Automobile Club Limited and of Epsom Downs Racecourse Limited. Chairman of the Remuneration Committee. Aged 61.

Tracy Robbins

Has over 20 years’ experience in line and HR roles in service industries. She joined the Group in December 2005 from Compass Group PLC, a world leading food service company, where she was Group Human Resources Leadership & Development Director. Previously Group HR Director for Forte Hotels Group. Responsible for global talent management and leadership development, reward strategy and implementation. Aged 42.

Richard Solomons

Qualified as a chartered accountant in 1985, followed by seven years in investment banking, based in London and New York. He joined the Group in 1992 and held a variety of senior finance and operational roles. Appointed Finance Director of the Hotels business in October 2002 in anticipation of the Separation of Six Continents PLC in April 2003. Responsible for Group and regional finance, asset management, strategy, investor relations, tax and treasury. Aged 44.

Sir Howard Stringer

Has over 35 years’ experience in the media and entertainment industries. He was appointed a director in April 2003. He was appointed Group Chairman and Chief Executive Officer of Sony Corporation in 2005, continuing his distinguished career with Sony since 1997. He served as a non-executive director of Six Continents PLC from 2002 until April 2003. Aged 64.

David Webster

Appointed Deputy Chairman and Senior Independent Director of InterContinental Hotels Group on the Separation of Six Continents PLC in April 2003. Appointed non-executive Chairman on January 1, 2004. He

is also non-executive Chairman of Makinson Cowell Limited, a capital markets advisory firm. He was formerly Chairman of Safeway plc and a non-executive director of Reed Elsevier PLC. Chairman of the Nomination Committee. Aged 61.

Richard Winter

Lawyer, qualified in 1973 and has over 20 years’ commercial law experience in private practice. He joined the Group in 1994 as Director of Group Legal and was appointed Company Secretary in 2000. Now responsible for corporate governance, risk management, internal audit, data privacy, company secretariat, group legal matters and corporate social responsibility. Aged 57.

COMPENSATION

In fiscal 2005, the aggregate compensation (including pension contributions, bonus and awards under the long term incentive plans) of the directors and officers of the Company was £14.4 million. The aggregate amount set aside or accrued by the Company in fiscal 2005 to provide pension retirement or similar benefits for those individuals was £287,187. An amount of £6.9 million was charged in fiscal 2005 in respect of bonuses payable to them under performance related cash bonus schemes and long term incentive plans.

Note 3 of Notes to the Financial Statements sets out the individual compensation of the directors. The following are details of the Company’s principal share schemes, in which the directors of the Company participated during the period.


	Share Plans

Under the terms of the Separation of Six Continents PLC in 2003, holders of options under the Six Continents Executive Share Option Schemes were given the opportunity to exchange their Six Continents options for equivalent value new options over IHG PLC shares. During fiscal 2005, 4,138,482 such options were exercised, leaving a total of 7,909,002 such options outstanding at prices ranging from 308.48p to 593.29p.


	Executive Share Option Plan

The Remuneration Committee, consisting solely of independent non-executive directors, may select employees within the Group, including executive directors, of the Company, to receive a grant of options to acquire ordinary shares in the Company. Under the terms of the Plan the option price may not be less than the market value of an ordinary share, or the nominal value if higher. The market value is either the quoted price on the business day preceding the date of grant, or the average of the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. The international schedule to the share plan extends it to executives outside the United Kingdom. Grants of options under the Executive Share Option Plan have normally been made annually and except in exceptional circumstances, have not, in any year, exceeded three times annual salary for executive directors. A performance condition must be met before options can be exercised. The performance condition is set by the Remuneration Committee.

In April 2005, options were granted to 58 employees over 2,104,570 IHG shares at 619.83p per share. For options granted in 2005, the Company’s adjusted earnings per share over the three-year performance period ending December 31, 2007 must increase by at least nine percentage points over the increase in the UK Retail Prices Index for the same period for any of the award to vest. Options granted in 2005 are exercisable between 2008 and 2015, subject to the achievement of the performance condition.

Following a full review of incentive arrangements, the Remuneration Committee has concluded that share options are not the most effective incentive for the foreseeable future and therefore no further grants of options will be made. However, the Committee believes that share ownership by executive directors and senior executives strengthens the link between the individual’s personal interest and that of the shareholders.

As of March 17, 2006, options over 22,459,267 IHG PLC shares were outstanding under the Executive Share Option Plan.


	Short Term Deferred Incentive Plan

The IHG Short Term Deferred Incentive Plan (the “STDIP”) enables eligible employees, including executive directors, to receive all or part of their bonus in the form of IHG PLC shares on a deferred basis. Matching shares may also be awarded up to 0.5 times the deferred amount. The bonus and matching shares are deferred and will normally be released at the end of each of the three years following deferral. Participation in the STDIP is at the discretion of the IHG PLC directors. The number of shares is calculated by dividing a specific percentage of the participant’s salary by the average share price for a period of days prior to the date on which the shares are granted. As of March 17, 2006, there were 1,157,708 IHG PLC shares over which conditional rights had been awarded to participants under the Plan.


	Performance Restricted Share Plan

The Performance Restricted Share Plan allows executive directors and eligible employees to receive share awards, subject to the satisfaction of a performance condition, set by the Remuneration Committee, which is normally measured over a three-year period. Awards are normally made annually and, except in exceptional circumstances, will not exceed three times annual salary for executive directors. In determining the level of awards within this maximum limit, the Committee takes into account the level of Executive Share Options already granted to the same person. The grant of awards is restricted so that in each year the aggregate of (i) 20% of the market value of the executive share options and (ii) 33% of the market value of performance restricted shares, will not exceed 130% of annual salary, taking the market value in each case as at the date of grant. As of March 17, 2006 there were 7,373,799 IHG PLC shares over which conditional rights had been awarded to employees under the Plan. The Plan provides for the grant of “nil cost options” to participants as an alternative to share awards. As of March 17, 2006, no such nil cost options had been granted.


	Sharesave Plan

The Sharesave Plan is a savings plan whereby employees contract to save a fixed amount each month with a Savings Institution for 3 or 5 years. At the end of the savings term, employees are given the option to purchase shares at a price set before savings began. The Sharesave Plan is available to all UK employees (including executive directors) employed by participating Group companies provided they have been employed for at least one year. The Plan provides for the grant of options to subscribe for ordinary shares at the higher of nominal value and not less than 80% of the middle market quotations of the ordinary shares immediately before invitations go out. As of March 17, 2006, options over 725,292 IHG PLC shares were outstanding under the Sharesave Plan at a subscription price of 420.5p, exercisable up to the year 2009.


	*Options and Ordinary Shares held by Directors*

Details of the directors’ interests in the Company’s shares are set out on page 68 and in Note 3 of the Notes to the Financial Statements.

BOARD PRACTICES


	*Contracts of Service*

The Remuneration Committee’s policy is for Executive Directors to have rolling contracts with a notice period of 12 months.

Richard Hartman, Stevan Porter and Richard Solomons have service agreements with a notice period of 12 months. Andrew Cosslett entered into a service agreement with an initial notice period of 24 months, reducing month by month to 12 months of service. As at the date of this report, Andrew Cosslett’s notice period is 12 months. All new appointments are intended to have 12-month notice periods. However, on occasion, to complete an external recruitment successfully, a longer initial period reducing to 12 months may be useful.

David Webster ceased to act in his temporary capacity as interim Chief Executive following the appointment of Andrew Cosslett as Chief Executive on February 3, 2005. David Webster’s appointment as non-executive Chairman, effective from January 1, 2004, is subject to six months’ notice.

Non-executive directors, Ralph Kugler, Robert C. Larson, Sir David Prosser and Sir Howard Stringer signed letters of appointment effective from the listing of IHG PLC in April 2003. These were renewed, effective from completion of the capital reorganisation of the Group and the listing of new IHG PLC shares on June 27, 2005. David Kappler signed a letter of appointment effective from his date of original ap